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Meritage Homes (MTH) Q2 Earnings Top, Orders & Backlog Fall
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Meritage Homes Corporation’s (MTH - Free Report) stock rose 5% in the after-hours trading session on Jul 27, after it reported better-than-expected results for second-quarter 2023. Both earnings and total closing revenues surpassed the Zacks Consensus Estimate.
Housing demand remained favorable as homebuyers adapted to higher mortgage rates environment. The new home market continues to benefit from the sustained shortage of resale homes and favorable demographic trends. MTH’s management noted that its nearly 90% backlog conversion was driven by the spec strategy during the quarter.
However, earnings declined from the year-ago quarter’s levels, thanks to lower gross margin and overhead de-leverage.
Earnings & Revenue Discussion
Earnings of $5.02 per share topped the Zacks Consensus Estimate of $3.49 by 43.8% but declined 26% year over year from $6.77 posted a year ago.
Meritage Homes Corporation Price, Consensus and EPS Surprise
Total revenues (including Homebuilding and Financial Services revenues) amounted to $2.86 billion compared with $2.71 billion reported in the year-ago period.
Segment Discussion
Homebuilding: Total closing revenues totaled $1,567.4 million, up 11% from the prior-year quarter’s level of $1,412.4 million. The metric beat the consensus mark of $1,311 million by 19.5%.
Home closing revenues totaled $1,543 million, up 10% from the prior-year quarter’s level of $1,408.9 million, backed by improving housing demand and cycle times. MTH reported 3,490 units of homes closed, up 8% from 3,221 units year over year. The average sales price (ASP) was 1% higher from a year ago to $442,000. Our estimate for the metric was 2,937 units for $437,670 ASP.
Total home orders fell 11% from the prior year to 3,340 homes. In dollars, home orders fell 19% year over year to $1.47 billion on an 8% lower ASP of $442,000. The decline was due to the pull-forward of sales last year on expansive rate locks. We estimated home orders to be down 8.2% year over year.
Average absorptions per store was 3.9 per month, down from 4.4 per month a year ago. The average community count remained flat year over year.
Entry-level buyers represented 85% of sales orders compared with 86% in the year-ago quarter.
Quarter-end backlog totaled 3,772 units, down 48% year over year. The value of the backlog also decreased by 51% year over year to $1.69 billion.
Adjusted home closing gross margin contracted by 720 basis points (bps) to 24.4% due to the greater sales incentives in prior year and continued elevated direct costs. Selling, general and administrative expenses — as a percentage of home closing revenues — increased 130 bps to 9.6% from the prior-year quarter due to higher broker commissions and marketing costs.
Land closing revenues amounted to $24.4 million, up from $3.43 million in the year-ago quarter.
Financial Services: The segment’s revenues rose 21% from the prior-year quarter’s level to $6.21 million.
Balance Sheet
At the end of second-quarter 2023, cash and cash equivalents totaled $1.16 billion compared with $861.6 million on Dec 31, 2022. At the end of June 2023, 60,000 lots were owned or controlled by the company compared with 71,000 lots a year ago.
Total debt to capital was 21.4% compared with 22.6% at 2022-end. Net debt to capital was negative 0.2% versus 6.8% on Dec 31, 2022.
Net cash provided by operating activities for the first six months of 2023 were $355.9 million versus net cash used in operating activities of $206.8 million a year ago.
MTH repurchased 93,297 shares of its common stock for $10 million during the first half. As of Jun 30, 2023, $234.1 million shares remained under the authorized share repurchase program.
Outlook
Backed by normalizing housing market conditions, MTH projects 13,300-13,800 home closings for 2023, which is likely to generate home closing revenues of $5.85-6.07 billion. Home closing gross margin is expected to be in the low 24% range. It expects earnings to be within $19.12-$19.80 for the year. It estimates effective tax rate of 22.5%.
NVR, Inc. (NVR - Free Report) reported second-quarter 2023 results, with earnings surpassing the Zacks Consensus Estimate and revenues missed the same. The top and bottom lines declined on a year-over-year basis, thanks to delayed housing activities and macroeconomic woes.
NVR reported earnings of $116.54 per share, which topped the consensus mark of $100.98 by 15.4%. The reported figure, however, decreased by 6% from the prior-year quarter’s figure of $123.65 per share.
PulteGroup Inc. (PHM - Free Report) reported impressive results in second-quarter 2023. Its earnings and revenues surpassed their respective Zacks Consensus Estimate and increased year over year. The upside was mainly driven by its solid operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
Backed by its disciplined and balanced business model, the company witnessed solid gross closings, orders and margins in the reported quarter and posted a 12-month return on equity of 32%.
D.R. Horton, Inc. (DHI - Free Report) reported third-quarter fiscal 2023 (ended Jun 30, 2023) results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate.
On a year-over-year basis, although earnings declined, revenues increased. The company highlighted that the supply of both new and existing homes at affordable price points remains limited and that the demographics supporting housing demand remain favorable. This tailwind has helped this Arlington, TX-based homebuilder witness net sales order growth of 37% year over year in the fiscal third quarter.
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Meritage Homes (MTH) Q2 Earnings Top, Orders & Backlog Fall
Meritage Homes Corporation’s (MTH - Free Report) stock rose 5% in the after-hours trading session on Jul 27, after it reported better-than-expected results for second-quarter 2023. Both earnings and total closing revenues surpassed the Zacks Consensus Estimate.
Housing demand remained favorable as homebuyers adapted to higher mortgage rates environment. The new home market continues to benefit from the sustained shortage of resale homes and favorable demographic trends. MTH’s management noted that its nearly 90% backlog conversion was driven by the spec strategy during the quarter.
However, earnings declined from the year-ago quarter’s levels, thanks to lower gross margin and overhead de-leverage.
Earnings & Revenue Discussion
Earnings of $5.02 per share topped the Zacks Consensus Estimate of $3.49 by 43.8% but declined 26% year over year from $6.77 posted a year ago.
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 $2.86 billion compared with $2.71 billion reported in the year-ago period.
Segment Discussion
Homebuilding: Total closing revenues totaled $1,567.4 million, up 11% from the prior-year quarter’s level of $1,412.4 million. The metric beat the consensus mark of $1,311 million by 19.5%.
Home closing revenues totaled $1,543 million, up 10% from the prior-year quarter’s level of $1,408.9 million, backed by improving housing demand and cycle times. MTH reported 3,490 units of homes closed, up 8% from 3,221 units year over year. The average sales price (ASP) was 1% higher from a year ago to $442,000. Our estimate for the metric was 2,937 units for $437,670 ASP.
Total home orders fell 11% from the prior year to 3,340 homes. In dollars, home orders fell 19% year over year to $1.47 billion on an 8% lower ASP of $442,000. The decline was due to the pull-forward of sales last year on expansive rate locks. We estimated home orders to be down 8.2% year over year.
Average absorptions per store was 3.9 per month, down from 4.4 per month a year ago. The average community count remained flat year over year.
Entry-level buyers represented 85% of sales orders compared with 86% in the year-ago quarter.
Quarter-end backlog totaled 3,772 units, down 48% year over year. The value of the backlog also decreased by 51% year over year to $1.69 billion.
Adjusted home closing gross margin contracted by 720 basis points (bps) to 24.4% due to the greater sales incentives in prior year and continued elevated direct costs. Selling, general and administrative expenses — as a percentage of home closing revenues — increased 130 bps to 9.6% from the prior-year quarter due to higher broker commissions and marketing costs.
Land closing revenues amounted to $24.4 million, up from $3.43 million in the year-ago quarter.
Financial Services: The segment’s revenues rose 21% from the prior-year quarter’s level to $6.21 million.
Balance Sheet
At the end of second-quarter 2023, cash and cash equivalents totaled $1.16 billion compared with $861.6 million on Dec 31, 2022. At the end of June 2023, 60,000 lots were owned or controlled by the company compared with 71,000 lots a year ago.
Total debt to capital was 21.4% compared with 22.6% at 2022-end. Net debt to capital was negative 0.2% versus 6.8% on Dec 31, 2022.
Net cash provided by operating activities for the first six months of 2023 were $355.9 million versus net cash used in operating activities of $206.8 million a year ago.
MTH repurchased 93,297 shares of its common stock for $10 million during the first half. As of Jun 30, 2023, $234.1 million shares remained under the authorized share repurchase program.
Outlook
Backed by normalizing housing market conditions, MTH projects 13,300-13,800 home closings for 2023, which is likely to generate home closing revenues of $5.85-6.07 billion. Home closing gross margin is expected to be in the low 24% range. It expects earnings to be within $19.12-$19.80 for the year. It estimates effective tax rate of 22.5%.
Zacks Rank & Peer Releases
Meritage Homes currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NVR, Inc. (NVR - Free Report) reported second-quarter 2023 results, with earnings surpassing the Zacks Consensus Estimate and revenues missed the same. The top and bottom lines declined on a year-over-year basis, thanks to delayed housing activities and macroeconomic woes.
NVR reported earnings of $116.54 per share, which topped the consensus mark of $100.98 by 15.4%. The reported figure, however, decreased by 6% from the prior-year quarter’s figure of $123.65 per share.
PulteGroup Inc. (PHM - Free Report) reported impressive results in second-quarter 2023. Its earnings and revenues surpassed their respective Zacks Consensus Estimate and increased year over year. The upside was mainly driven by its solid operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
Backed by its disciplined and balanced business model, the company witnessed solid gross closings, orders and margins in the reported quarter and posted a 12-month return on equity of 32%.
D.R. Horton, Inc. (DHI - Free Report) reported third-quarter fiscal 2023 (ended Jun 30, 2023) results, wherein earnings and revenues surpassed their respective Zacks Consensus Estimate.
On a year-over-year basis, although earnings declined, revenues increased. The company highlighted that the supply of both new and existing homes at affordable price points remains limited and that the demographics supporting housing demand remain favorable. This tailwind has helped this Arlington, TX-based homebuilder witness net sales order growth of 37% year over year in the fiscal third quarter.