Meritage Homes (MTH) Beats Q3 Earnings & Revenue Estimates

Meritage Homes Corporation (NYSE:MTH) reported third-quarter 2019 results, with earnings and revenues surpassing the Zacks Consensus Estimate on strong homebuying activity.

Earnings of $1.79 per share topped the consensus mark of $1.49 by 19.9%. Also, the reported figure improved 35% year over year backed by home closing revenues, gross margins and greater overhead leverage.

Home closing revenues amounted to $939.2 million that surpassed the consensus mark of $914 million by 2.3% and rose 7% year over year. Meanwhile, total revenues (including Home closing, Land closing and Financial services revenues) totaled $945.2 million, up 6.4% from year-ago quarter’s levels.

Meritage Corporation Price, Consensus and EPS Surprise

Segment Discussion

Homebuilding/Total Closing Revenues: Revenues in the segment increased 6% from the prior-year quarter’s tally to $940.9 million. The upside can be attributed to a 12% increase in volume, partially offsets by 4% reduction in average sales price (ASP) due to shift in product mix.

Home closing revenues in the East and Central regions were up by 15% and 9% year over year, respectively, while West remained flat.

Homes closed during the quarter came in at 2,419, up 12% year over year. Home closing gross margin for the third quarter increased 170 basis points (bps) to 19.8% from year-ago quarter’s figure, contributing 17% year-over-year increase to total home closing gross profit.

Total orders increased 24% from the prior-year quarter’s levels to 2,258 homes. The value of net orders also increased 20% year over year to $858.4 million mainly due to higher absorption rate.

However, land closing revenues amounted to $1.7 million that declined from $6.8 million in the year-ago quarter.

Financial Services: The segment’s revenues increased 13% from the prior-year quarter’s level to $4.3 million.

Operating Highlights

Selling, general and administrative expenses (as a percentage of home closing revenues) of 10.7% fell 30 bps from the prior-year quarter’s level of 11%.

Balance Sheet

As of Sept 30, 2019, cash and cash equivalents totaled $454.8 million compared with $311.5 million on Dec 31, 2018.

As of Sept 30, debt-to-capital ratio of the company fell to 41.1% from 43.2% on Dec 31, 2018. Also, net debt-to-capital ratio contracted to 31.3% from 36.7% on Dec 31, 2018.

Raised 2019 Guidance

Meritage Homes now expects 2019 home closings in the range of 8,900-9,100 compared with 8,700-9,100 projected earlier. The company expects total home closing revenues of approximately 3.5 billion, maintaining the mid-point of its previously guided range of $3.4-$3.6 billion.

The company anticipates home closing gross margin in mid to high 18% and earnings in the range of $5.50-$5.70 per share compared with $5.20-5.50 expected earlier.

Zacks Rank & Peer Releases

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

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