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Meritage Beats 1Q Earnings on Strong Top Line

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Meritage Homes Corporation’s (MTH - Free Report) first-quarter 2013 earnings per share of 32 cents beat the Zacks Consensus Estimate of 25 cents by 28.0%.

Earnings per share also improved significantly from a loss of 15 cents a share recorded in the prior-year quarter buoyed by robust rise in home closing revenues.

Total revenue in the first quarter of 2013 amounted to $336.4 million, up 64.6% year over year. Reported revenues beat the Zacks Consensus Estimate of $316 million by 6.5%. Meritage’s home closing revenues were $330.7 million, up 62.1% from the prior-year quarter. Year-over-year growth in home closing revenues was attributable to a 39% increase in the number of homes closed and a 17% hike in average closing prices.  

Net sales orders climbed 35% year over year to 1,547 units during the quarter, reflecting sales order gains across all states. The value of net orders rose 69% to $520.4 million owing to order growth and a 25% hike in average prices. The boom in net order bookings was attributed to a stabilizing recovery in the housing market. This was backed by low interest rates and high affordability as renting became a more expensive option luring buyers to new homes. Markets in California, Colorado, the Carolinas and Florida witnessed strongest order growth during the quarter.  

The company closed 1,052 homes in the first quarter of 2013, up 39%. The company started raising prices in most of its communities with market demand gaining momentum. The average selling prices of the closings stood at $314 million, up 17%.

Meritage’s backlog totaled 1,967 homes as of Mar 31, 2013, up 51% from 1,300 homes as of Mar 31, 2012. The value of backlog grew 89% year over year to $669 million in the first quarter of 2013, owing to stronger demand and 25% increase in prices. Cancellation rate in the quarter also improved 400 basis points to 11% of gross orders versus 15% in the prior-year quarter, driven by expectation of further price appreciations.

Reported home closing gross profit increased to $64.4 million, up 83.5% year over year. The increase in gross profit was driven by higher sales prices. Consequently, the company’s adjusted home closing gross margin was 21.0% in the first quarter of 2013, up 260 basis points from the prior-year quarter.  

The company opened 24 new communities during the first quarter of 2013, ending the quarter with 168 active communities. Community count was up 12% from the prior-year quarter and highest in about last four years. With the demand for new homes gaining momentum, prices have gone up due to inadequate supply. As such Meritage spend $75 million on land acquisition and added about 1,600 lots under contract during the quarter.   


Meritage believes that with the improvement in overall economy, job market and low mortgage rates, housing demand will continue to increase. The company expects 40% to 45% year-over-year increase in revenues for each of the remaining three quarters of 2013. Earnings per share are expected in the range of $2.20 to $2.45 for 2013, which marks a 350% – 400% increase in pre-tax earnings. The company expects to end 2013 with 185 active communities. The company further intends to invest up to $600 million in land development in 2013. 

We appreciate Meritage’s consistent earnings beat for the past four quarters. The company has been witnessing strong top-line growth and margin expansion, which promises steady growth momentum in the upcoming quarters. 

Meritage Homes Corporation currently carries a Zacks Rank #3 (Hold).

Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI - Free Report) , Ryland Group Inc. and KB Home (KBH - Free Report) . While D.R Horton and Ryland carry a Zacks Rank #1 (Strong Buy), KB Home carries a Zacks Rank #2 (Buy).

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