With home orders falling 23 percent, closings sliding 28 percent, and a 41 percent cancellation rate, Meritage Homes joins the long list of big builders who faced an unstable third quarter. The Arizona-based builder is reporting a net loss of $119 million for the period ending Sept. 30. The results of the quarter were released after the stock market closed on Thursday.
According to the report, Meritage, ranked No. 12 in the 2006 BUILDER 100, closed 1,894 homes with an average selling price of $303,000 for the quarter. With the housing sector continuing to fall deeper into a recession, Meritage CEO Steven J. Hilton says his company plans to play it safe to address the soft demand for new homes, coupled with high cancellation rates.
"Current market conditions are as weak as they've been for many years, and it's unclear when conditions will improve. Home sellers are reducing prices to compete aggressively for fewer buyers, and buyers are looking for prices to stabilize before purchasing," Hilton said in a released statement. "The precipitous declines in states like Florida, California, and Nevada are well-known, and sales in Texas also slowed noticeably this quarter. While conditions remain weak, we are operating much more conservatively and protecting our balance sheet, with a strategy of positioning the company to capitalize on opportunities in traditional high-growth markets when home building rebounds."
"In order to strengthen our balance sheet and reduce debt, we liquidated over 11 percent of our spec inventory this quarter, renegotiated or opted out of about 6,000 lot purchases under option contracts, and reduced our total lot supply by 20 percent," Hilton continued. "These actions contributed to our $88 million turnaround in cash flow from last quarter, and resulted in us achieving positive cash flow from operations earlier than we had projected. These improvements should continue to benefit our liquidity and future cash flow."
Meritage, which builds in the South, Southwest, and West, revealed their "aggressive plan to generate positive cash flow" in 2008 during a company presentation Friday morning. The strategies include:
Hilton pointed out that the company's third quarter liquidations of spec inventory has given Meritage a head start in the fourth quarter. And, while the builder says it is doing all it can to navigate this challenging period, one thing the company can't dictate is buyer perception.
"The weak state of the housing industry is well documented," Hilton said Friday. "And some actions by the government and Fed may help. But we can't control customer confidence."
Hilton added that Meritage will continue to take a "conservative approach" and focus on things that the company can control.
Learn more about markets featured in this article: Phoenix, AZ.