Meritage Homes Corporation this morning (June 7) warned Wall Street that it would be unable to achieve the financial guidance it announced on April 25 and that market conditions had deteriorated to a point that "could significantly impact our near-term profitability."
The company reported that April and May preliminary net home sales for the first two months of the second quarter were off 21% from the same period last year and that cancellations crept upward from 27% during the first quarter to 36% of gross orders.
"Weaker demand has predictably led to further price competition and margin deterioration, which we believe will prevent us from achieving the guidance we provided on April 25 for total home closings, revenue and earnings for 2007," said Steven J. Hilton, chairman and CEO of Meritage. "It also increases the risk for larger associated write-offs of options and impairment charges, which could significantly impact our near-term profitability."
The announcement was a marked turnaround from the relatively optimistic view offered by the company just last month. Explained Hilton, "We were encouraged by sales and cancellation rates that improved each month of the first quarter, leading us to anticipate relatively stronger second-quarter sales results. But these positive trends ended at the beginning of April, as demand slowed and cancellations rose. The weaker conditions we noted in April when we reported our first-quarter results, continued through May.Order cancellations increased after widely reported concerns over credit tightening and difficulties in the subprime markets, which appeared to dampen consumers' confidence and demand for homes."
He concluded, "In light of weaker conditions and reduced expectations, we are reviewing our operating plans for the remainder of the year, as we continue to focus on protecting our balance sheet and maximizing our flexibility through this downturn."
Meritage expects to report final results for its second quarter ending June 30, 2007, on or about July 25, with a conference call following the earnings release.