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Meritage Homes (MTH) Lags on Q3 Earnings, Slashes 2018 View

Meritage Homes CorporationMTH reported third-quarter 2018 results, with both the top and bottom lines missing the Zacks Consensus Estimate. While net earnings of $1.33 per share missed the consensus mark of $1.37 per share by 2.9%, revenues of $884.6 million missed the same by 1.7%. The company also slashed its full-year guidance, considering the softness in the overall market owing to higher home prices and interest rate environment. Shares of Meritage Homes slipped 1.6% yesterday, following the earnings release.

Nonetheless, on a year-over-year basis, earnings increased 30% from the year-ago level of $1.02 per share. Also, revenues rose 9.8% from the year-ago figure of $805.6 million. The performance was primarily backed by a 10% rise in home closings. Meanwhile, the successful execution of strategic initiatives to boost profitability along with its focus on entry-level LiVE.NOW homes led to the upside.

Meritage Corporation Price, Consensus and EPS Surprise

Meritage Corporation Price, Consensus and EPS Surprise | Meritage Corporation Quote

Home Closings and Orders

Within the Homebuilding section, home closing revenues grew 9% year over year to $877.7 million, aided by higher home deliveries. Land closing revenues were $6.8 million, up from $0.6 million a year ago.

Home closings increased 10% to 2,162 homes, recording the second highest number of homes delivered in more than a decade, partially offset by a 1% decrease in average sales price. The company registered growth across all regions in Central and East, except West.

Total orders were down 2% to 1,828 homes due to a 42% decrease in average active communities in California. The value of net orders fell 6.5% to $715.1 million.

Revenues at the Financial Services segment increased 8% to $3.8 million.

Margins

Home sales gross margin of 18.1% was in line with the prior-year figure. Meanwhile, excluding $2.6 million termination charges of a purchase agreement for land in California, home sales gross margin expanded 10 basis points year over year to 18.4% in the quarter.

SG&A expenses, as a percentage of home closing revenues, were 11% versus 10.9% in the prior-year quarter.

Pre-tax earnings came in at $71.4 million, reflecting an increase of 12.5% from the year-ago period.

Balance Sheet

Meritage Homes' cash and cash equivalents totaled $205.8 million as of Sep 30, 2018 compared with $170.7 million on Dec 31, 2017.

Meanwhile, the company repurchased its common stock of approximately $29.4 million, under the current authorization of $100 million.

Debt-to-capital ratios reduced to 43.4% as of Sep 30, 2018 from 44.9% on Dec 31, 2017. Also, net debt-to-capital ratios were down to 39.2% from 41.4%, in the said time frames.

2018 Guidance Lowered

The company anticipates home closing revenues within $3.375-3.475 billion (earlier expectation of $3.5-$3.65 billion). Homes closings are now expected within approximately 8,300-8,500 units compared with the prior guided range of 8,450-8,850 units.

The company now expects home sales gross margin of 18% (versus 18-18.5% projected earlier). Pre-tax profit is now expected between $265 million and $285 million ($295-$315 million expected earlier).

Zacks Rank & Key Picks

Meritage Homes currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the Zacks Construction sector are Armstrong World Industries, Inc. AWI , Continental Building Products, Inc. CBPX and NCI Building Systems, Inc. NCS , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Armstrong World, Continental Building and NCI Building's 2018 earnings are expected to grow 23.5%, 52.6% and 81.3%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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