Meritage Homes Corp. (NYSE:MTH) late Monday reported a smaller net loss for the third quarter of 2009 than it did for the same quarter last year and said new orders rose 8% while the cancellation rate fell to a four-year low of 20%.
The loss for the quarter ended Sept. 30 was $18 million (-$0.56 per share), compared to a net loss of $144 million (-$4.69 per share) in the third quarter of 2008. The 2009 loss included pre-tax impairment charges of $13 million versus $55 million in last year's quarter.
Home closings declined 29% to 1,015, and the average closing price fell 12.7%, pushing revenue down 38% year over year to $232 million. The company attributed the lower price to market conditions and a change in product mix to smaller, more affordable homes. Sales of homes to entry level and first move-up buyers represented about two-thirds of third quarter sales, the company said.
Net orders were up 8% to 1,098 homes, driven by gains of 53% in California, 40% in Colorado and 176% in Florida, which together made up 23% of third quarter 2009 sales. The increases in some of the hardest hit markets were muted by minor decreases in Meritage's largest markets, as Texas sales were 2% lower and Arizona was 4% lower than the previous year.
The cancellation rate of 20% was the lowest for Meritage in more than four years. With 22% fewer active communities at quarter's end, the average sales per community increased to 6.5 for the third quarter 2009 from 4.8 in the same period last year. Backlog was down 26% to 1,676 homes with an aggregate value of $405 million, down 34% from the same period last year.
Gross profit margin (minus charges) was 14.5%, up from 12.3% sequentially and 12.7% year-over-year. Net of impairments, gross margins were 9.9% for the third quarter of 2009 and -1.7% for the third quarter of 2008. General and administrative expenses were down 31% to $14 million; commissions and other sales costs were down 46% to $18.4 million, both from the year-ago quarter.
The company ended the quarter with $366 million in cash, cash equivalents and restricted cash as of September 30, 2009. Unrestricted cash declined by$38 million during the third quarter, primarily due to the use of cash for new lots and a $19 million restricted cash balance established to secure outstanding letters of credit previously supported by the company's $`150 million revolver, which was terminated.
The company went lot shopping during the quarter, picking up 2,500 lots in11 communities within five states, including approximately 1,300 lots in Province, an active adult community outside Phoenix. Still, lot count was down to 13,221 from 20,738 a year earlier, 63% owned, a 3.1-year supply.
Meritage also said it had been building spec homes in anticipation of sales to first-time buyers taking advantage of the federal tax credit. Meritage held 407 unsold homes in inventory at quarter's end, an average of 2.5 specs per community, compared to 809 or 3.9 specs per community one year earlier.It said it has been starting more homes before obtaining a sales contract, but sales have outpaced starts, resulting in a net reduction in spec inventory during the year. Meritage said it had reduced its average time from sale to close by approximately eight weeks since the beginning of 2008.By shortening cycle times from sale to close, it said it expects to be able to build and deliver more homes without increasing the inventory on its balance sheet.
"We've significantly improved our gross margins despite pricing pressures by designing efficient homes that offer our buyers tremendous value, reducing our construction costs, and building communities in highly desirable locations," said Steven J. Hilton, chairman and CEO. "We have driven down our average construction costs by 30-40% in many of our markets, allowing us to offer lower prices while also improving our profitability per home."
He added, "We are actively pursuing finished lot positions in most of our markets, and expect to acquire additional communities through the balance of the year."
Shares of Meritage were down 2.3% at $19.23 at the end of the session Monday amid a slump in the overall market and the housing sector. They were not active in after-market trading.