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Meritage Homes (MTH) Q1 Earnings and Sales Top Estimates

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Meritage Homes Corporation (MTH - Free Report) reported solid results for first-quarter 2022. Quarterly earnings surpassed the Zacks Consensus Estimate and increased on a year-over-year basis. Revenues also rose from the year-ago quarter’s levels on the back of a strong housing market, thanks to a low supply of new and resale housing inventory and favorable demographics.

MTH recorded the highest quarterly sales order volume and second-highest first-quarter home closings. It also recorded the highest quarterly home closing gross margin, the highest first quarter of home closing revenues and the best quarterly SG&A leverage in the company’s history.

Shares of this leading homebuilder gained 8.13% in the after-hours trading session on Apr 27, post earnings release.

Phillippe Lord, the CEO of MTH, said, "With interest rates increasing, we believe that our affordable entry-level and first move-up homes that offer “surprisingly more” allow us to expand our customer base to include those that are being priced out of move-up communities and consider our homes an attractive alternative. Our mid-year goal of a 300 community count is within reach. We continue to carefully navigate the still-constrained operating environment by expanding our trade base and strengthening critical relationships.”

Earnings & Revenue Discussion

Meritage Homes reported earnings of $5.79 per share, which topped the Zacks Consensus Estimate of $4.68 by 23.7% and increased 68% year over year. The uptrend was due to solid pricing power, expanded gross margin, improved overhead leverage and a lower outstanding share count in the quarter.

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


Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.29 billion, up 18.7% from the year-ago quarter’s levels backed by solid home and land closing.

Segment Discussion

Homebuilding: Total closing revenues totaled $1,286.9 million, up 19% from the prior-year quarter’s level of $1,083.8 million. The metric topped the consensus mark of $1,246 million by 3.3%. Home closing revenues totaled $1,245.5 million, up 15% year over year. The upside can be attributed to a 17% increase in average sales price or ASP. Volumes dropped 1% year over year.

During the quarter, the company reported homes closed of 2,858 units, down 1.1% year over year. In dollars, homes closed gained 15.3% year over year to $1.25 billion. Total home orders increased 12% from the prior year to 3,874 homes, backed by a 32% increase in active community count, partially offset by a 16% decrease in average absorptions per store to 4.9 per month from 5.8 per month a year ago.

Entry-level buyers represented 83% of sales order compared with 76% in the year-ago quarter.

The value of net orders increased 31% year over year to $1.77 billion. Quarter-end backlog totaled 6,695 units, up 27.8% year over year. The value of the backlog also increased 45.9% year over year to $3.04 billion.

Home closing gross margin increased 560 basis points (bps) to 30.3%. Selling, general and administrative expenses — as a percentage of home closing revenues — improved 130 bps from the prior-year quarter’s levels. The uptrend was mainly driven by continued leverage of fixed costs on higher home closing revenues, lower broker commissions and the benefits of technology on sales and marketing efforts.

Land closing revenues amounted to $41.5 million, up from $3.8 million in the year-ago quarter.

Financial Services: The segment’s revenues dropped 2% from the prior-year quarter’s level to $4.67 million.

Balance Sheet

At the first quarter-end, cash and cash equivalents totaled $520.4 million compared with $618.3 million on Dec 31, 2021. At March-end, 75,100 lots were owned or controlled by the company compared with 58,000 lots at the end of first-quarter 2021.

Total debt to capital at quarter-end was 26.9% compared with 27.6% at 2021-end. Net debt to capital was 16.9% versus 15.1% on Dec 31, 2021.

2022 Guidance Updated

For 2022, Meritage Homes expects 14,500-15,500 home closings versus 12,801 in 2021. Home closing revenues are expected in the range of $6.5-6.9 billion ($6.1-6.5 billion projected earlier). In 2021, Home closing revenues totaled $5.1 billion. It now projects home closing gross margins in the low 28% range compared with 27.8% projected earlier.

With an effective tax rate of 25%, Meritage Homes anticipates earnings per share in the range of $26.3-27.9 versus $23.15-$24.65 expected earlier. The Zacks Consensus Estimate for the same is pegged at $24.52 per share.

Zacks Rank & Peer Releases

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

NVR, Inc.’s (NVR - Free Report) first-quarter 2022 earnings and revenues beat the respective the Zacks Consensus Estimate and increased year over year.

Higher average price of settlements in the quarter and lower lumber prices led to the upside for NVR.

D.R. Horton, Inc.’s (DHI - Free Report) second-quarter fiscal 2022 earnings and revenues beat the respective Zacks Consensus Estimate as well as improved on a year-over-year basis.

DHI increased its revenue guidance for the full year, depicting DHI’s industry-leading market share, broad geographic footprint and diverse product offerings across multiple brands.

KB Home (KBH - Free Report) reported lackluster results for first-quarter fiscal 2022 (ended Feb 28, 2022). The quarterly earnings and revenues missed their respective Zacks Consensus Estimate.

During the quarter, KBH faced intense supply chain issues and a constrained construction labor force, which extended the build times and delayed completions and planned deliveries.

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