Share price of
Meritage Homes Corporation
) dipped 3.85%, after the company lowered its outlook for community
count for 2014 while it reported second quarter 2014 earnings.
Meritage Homes posted second quarter results with earnings per
share of 85 cents that beat the Zacks Consensus Estimate of 81
cents by 4.94%. Earnings per share increased 15.0% year over year
due to an increase in revenues, margin expansion and operating
Meritage Homes Corporation - Earnings Surprise
Total revenue in the second quarter of 2014 amounted to $505.6
million, up 12.4% year over year on the back of a double-digit
increase in home closing revenues and average selling prices.
Reported revenues marginally beat the Zacks Consensus Estimate of
Quarter in Detail
Meritage's home closing revenues were $502.8 million, up 15.3% from
the prior-year quarter. Year-over-year growth in home closing
revenues was attributable to a 4% increase in the number of homes
closed and a 12% hike in average closing prices.
Land closing revenue was $2.8 million, down 79.9% from the
Net sales orders rose 0.6% year over year to 1,647 units during the
quarter, with highest order growth being recorded at Texas and
Carolinas. The value of Meritage's net orders rose 8.0% to $618.4
million. The company had 175 active communities as of Jun 30, 2014,
up 6.0% from 165 as of Jun 30, 2013.
The company started raising prices in most of its communities as
the company offered larger homes in higher priced communities.
Accordingly, the average selling price of the closings shot up 12%
in the quarter to $368,000 owing to favorable mix.
Meritage's backlog totaled 2,548 homes as of Jun 30, 2014, up 12%
from 2,283 homes as of Jun 30, 2013. The value of backlog grew 18%
year over year to $951.6 million in the quarter, owing to stronger
demand and a 6% increase in prices.
Meritage's adjusted home closing gross margin expanded 40 basis
points (bps) year over year to 21.9% in the second quarter of 2014,
driven by price appreciation. Pre-tax margin rose 240 bps to 10.9%
in the second quarter 2014, owing to operating leverage. Effective
tax rate increased to 36% in the quarter from 27% in the prior-year
General and administrative expenses for the second quarter of 2014
declined 10 bps to 4.9%.
Meritage has cash and cash equivalents of $230.6 million as of Jun
30, 2014, compared with $261 million as of Mar 31, 2014.
Acquisition of Legendary Communities
On Jul 10, 2014, Meritage entered into a definitive agreement to
acquire Atlanta-based Legendary Communities for a purchase price of
about $130 million. The acquisition is expected to close in the
third quarter of 2014.The acquisition will expand Meritage's
presence in the Southeast and add 40 active selling communities to
the company's total. The acquisition will allow the company to
enter the lucrative housing market of Atlanta and
Greenville-Spartanburg. The acquisition will also strengthen the
company's presence in Charlotte.
Lowered Outlook for 2014
Meritage Homes lowered its expected community count to the range of
205 to 215 compared to the previously provided range of 210 - 220
by the end of 2014. The guidance excludes the pending acquisition
of Legendary Communities. However, it expects solid revenue and
earnings growth in the latter half of 2014 on the back of an 18.0%
increase in backlog value in the present quarter.
Meritage Homes Corporation currently carries a Zacks Rank #4
Better-ranked stocks in the building/ construction sector include
Martin Marietta Materials Inc. (
), Beazer Homes USA Inc. (
) and Toll Brothers Inc. (
). All these companies hold a Zacks Rank #2 (Buy).
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