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Meritage Homes (MTH) Q3 Earnings Top Despite Supply-Chain Woes

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Meritage Homes Corporation (MTH - Free Report) reported third-quarter 2021 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate, defying the ongoing industry-wide supply-chain disruptions. Also, the top and the bottom line improved significantly on a year-over-year basis. Total revenues and earnings topped the Zacks Consensus Estimate for the 12th straight quarter.

Elaborating on the quarterly performance, Steven J. Hilton, executive chairman of Meritage Homes, said, “During the third quarter of 2021, we navigated ongoing industry-wide supply chain disruptions and produced the highest third quarter of home closings in our Company's history. We delivered 3,112 homes and produced a 10% year-over-year increase in home closing revenue to $1.3 billion. This led to two new Company quarterly records: highest gross margin of 29.7% and highest diluted EPS of $5.25.”

Earnings & Revenue Discussion

Meritage Homes reported earnings of $5.25 per share, which topped the Zacks Consensus Estimate of $4.62 by 13.6% and surged 85% year over year. The upside can be primarily attributed to solid home closing volume, increased pricing power, expanded gross margin and improved overhead leverage.

Total revenues (including total Closing revenues and Financial Services revenues) amounted to $1.265.1 billion, up 10.7% from the year-ago level.

Meritage Homes Corporation Price, Consensus and EPS Surprise

Meritage Homes Corporation Price, Consensus and EPS Surprise


Meritage Homes Corporation price-consensus-eps-surprise-chart | Meritage Homes Corporation Quote


Segment Discussion

Total Closing (Homebuilding) Revenues: Total closing revenues of $1.259 billion topped analyst expectation by 3.5% and increased 11% from the prior-year quarter, backed by stronger market demand and lower mortgage interest rates. Of the total, home closing revenues totaled $1.251 billion, up 10% year over year. Land closing revenues grew 74% to $8.5 million. The upside can be attributed to a 4% increase in closings to 3,112 homes, marking the company's best third quarter of closings. Average sales price (ASP) rose 7% year over year, given the continued strength in housing demand despite a strategic shift toward the entry-level market.

However, total home orders decreased 11% from the prior-year level to 3,441 homes due to a 15% decline in absorptions. High demand was witnessed from entry-level that accounted for 84% of third-quarter orders compared with 69% in the prior-year quarter.

Meanwhile, value of net orders remained flat year over year at $1.488 billion. Quarter-end backlog totaled 5,838 units, up 11% year over year. Value of backlog also increased 11% year over year to $2.56 billion, with a hike of 15% in ASP of backlog.

For the third quarter, home closing gross margin increased by a whopping 820 basis points (bps) to 29.7% from the year-ago period. The improvement stemmed from higher pricing and fixed cost leverage, given increased closings. Selling, general and administrative expenses — as a percentage of home closing revenues — declined 80 bps year over year to 9.3%.

Financial Services: The segment’s revenues increased 5% from the prior-year level to $5.2 million.

Balance Sheet

As of Sep 30, 2021, cash and cash equivalents totaled $562.3 million, down from $745.6 million at 2020-end.

Total debt to capital at quarter-end was 29.1% compared with 30.3% at 2020-end. Net debt to capital was 17.5% versus 10.5% on Dec 31, 2020.

2021 Guidance Narrowed

Given the unprecedented supply-chain issues, the company has narrowed its full-year guidance. For 2021, Meritage Homes now expects 12,600-12,900 home closings versus 12,500-13,00 expected earlier. Home closing revenues are now expected in the range of $5.05-$5.15 billion versus $5-$5.25 billion projected before. Also, it projects home closing gross margins between 27.5% and 27.75% versus 22.5% expected earlier for 2021. Effective tax rate is expected within 23% versus the earlier expectation of 22.5-23%.
Meanwhile, 2021 earnings per share are projected in the range of $18.75-$19.40 versus $18.55-$19.45 expected before. The company’s expectation depicts more than 70% growth at mid-point. The Zacks Consensus Estimate for the same is pegged at $18.64 per share.

Zacks Rank & Peer Releases

Meritage Homes currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PulteGroup Inc. (PHM - Free Report) — which currently holds a Zacks Rank #3 — reported third-quarter 2021 results, wherein earnings and revenues missed the Zacks Consensus Estimate, as major disruptions in the manufacture and supply of building products have been extending overall build cycles.

NVR, Inc. (NVR - Free Report) reported lower-than-expected earnings for third-quarter 2021. Nonetheless, the top and the bottom line improved impressively from the year-ago period on the back of solid demand. The stock currently has a Zacks Rank #3.

Lennar Corporation (LEN - Free Report) — which currently has a Zacks Rank #3 — reported third-quarter fiscal 2021 (ended Aug 31, 2021) results. Earnings topped the Zacks Consensus Estimate while revenues missed the same, thanks to unprecedented supply-chain challenges. Also, the company’s quarterly deliveries fell short of the guided range.

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