Meritage Corporation (MTH)

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Meritage Homes Corporation (MTH)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET


Brent Anderson - VP of IR

Steve Hilton - Chairman & CEO

Larry Seay - EVP & CFO


Joshua Pollard - Goldman Sachs

Dan Oppenheim - Credit Suisse

Ivy Zelman - Zelman Associates

Robert Hansen - Deutsche Bank

Stephen East - Ticonderoga Securities

Jade Rahmani - KBW

Josh Levin - Citigroup

Carl Reichardt - Wells Fargo

David Goldberg - UBS

Jim Wilson - JMP Securities

Alex Barron - Housing Research Center



Greetings and welcome to the Meritage Homes third quarter 2010 conference call. (Operator Instructions). It is now my pleasure to introduce your host Mr. Brent Anderson, Vice President of Investor Relations for Meritage Homes. Thank you Mr. Anderson you may begin.

Brent Anderson

Thank you, Manny. Good morning. I would like to welcome you to the Meritage Home’s Third Quarter 2010 Earnings Call and web cast. Our quarter ended on September 30 and we issued a press release with our results from the quarter after the market closed yesterday. If you need a copy of the release or the slides that accompany our web cast today, you can find them on our website at or by selecting the Investors link at the top of our homepage.

I will refer you to slide two of our presentation. Our statements during this call and the accompanying materials contain projections and forward-looking statements, which are the current opinions of management and subject to change. We undertake no obligation to update these projections or opinions. Additionally, our actual results may be materially different than our expectations due to various risk factors. For information regarding these risk factors, please see our press release and the most recent filings with the Securities and Exchange Commission, specifically our 2009 Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q.

Today's presentation also includes certain non-GAAP financial measures as defined by the SEC. To comply with the SEC’s rules, we have provided a reconciliation of these non-GAAP measures in our earnings press release.

With me today to discuss our results are Steve Hilton, Chairman and CEO of Meritage Homes; and Larry Seay, our Executive Vice President and CFO. We expect our call to run about an hour this morning, and a replay of this call should be available on our website within an hour or so after we conclude the call. It will remain active for 30 days.

I'll now turn it over to Mr. Hilton to review our third quarter results. Steve?

Steve Hilton

Thank you, Brent. I'd like to welcome everyone to our call today. I'll begin with an overview of our third quarter operating results and recap our progress on our strategic initiatives which we are still in for the last couple of years. Before turning it over to Larry, for a more detailed review of our financial results.

Let’s begin on slide four. I’m pleased to report that we were profitable again this quarter making it four quarters in a row of positive net income and three quarters of positive income before tax benefits.

We generated net income of $1.2 million or earnings of $0.04 per share on $234 million of closing revenue which was a big improvement over last year when we reported a third quarter loss of $17.8 million or $0.56 per share on revenue of $232 million. One big difference is that we had less than $1 million in impairments this year compared to $13 million of impairments last year.

Please turn to slide 5, our home closing revenue increased slightly despite a 16% decline in home closings due to a 21% increase in our average closing price which I will explain. Our average closing price rose to 275,700 per home, the third quarter of 2010 from 228,400 a year ago. The year-over-year increase reflects a couple of shifts in our mix of homes closed. Resident actual home price appreciation in our communities.

More of our closings came from states and communities with higher average prices, for example California, Colorado and Florida, currently we have the highest average prices of the states we operate in. Together they made up 28% of the total homes to be closed in the third quarter this year compared to 16% of our closings in the third quarter of last year. Our total closings in those three states were up more than 15% year-over-year.

On the other hand, Texas made up 15% of our third quarter closures this year compared to 60% last year as a result of the intentional rebalancing of our markets. On average closing prices in Texas are approximately 253,000 in 2010 was much lower than our average prices in California, Colorado and Florida which were approximately 391,000, 323,000 and 283,000 respectively.

In addition to the mix shifts between states, we are also experiencing the shift in our mix of buyers. We had a larger percentage of move up buyers this year compared to more first time home buyers at lower price points last year. Over last few years many home buyers removed the product offerings down the price spectrum believing there is less opportunity in the move-up market this time. While we also pursue the strategy recently we had good success acquiring close in move-up lots in eight locations which other builders may have passed on.

Due to our lower acquisition price and construction costs we are currently able to sell homes in these communities at dramatically lower prices then we were able to just a few years ago offering tremendous value and opportunity for Home buyers. Slide six, the increase in our third quarter net income was primarily driven by margin improvement.

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