During the UBS Building and Building Products 6th Annual CEO Conference, Meritage Homes president Steve Hilton stressed his commitment to see Congress pass the Fix Housing First stimulus plan to get the economy rolling again.
After running through the company's third quarter numbers--sales orders were down 29%, average home prices were down 8%, and total sales volume was down 35% with a cancellation rate of 40%--Hilton said Meritage will sustain through the downturn, but expressed his belief that Congress must act for the sake of both the industry and consumers.
"I don't believe we are headed for another Depression, but something needs to be done," Hilton stated, adding that such a stimulus would go a long way toward restoring confidence and giving consumers an incentive to buy.
The company is focusing on managing its cost structure to closely match revenues with a goal to break even before impairments and taxes come into play.
"We won't access our credit line until we return to profitability and we determine the market is improving," Hilton said, adding that the company is sitting on zero bank debt after paying its existing debt back with positive cash flow and building a significant cash position. Meritage expects to generate significant positive cash flow into the fourth quarter and beyond.
"As we close [on standing inventory], we will reinvest only a portion of that money into new lots and communities, but only when conditions improve," Hilton said. Meritage is also sitting on $80,000 to $90,000 in tax refunds that will become available in the first or second quarter of 2009.
Meritage holds a land-lite position, owning just over 9,000 lots after reducing lot supply by 60% from peak. This puts the company at a 3.3-year supply.
Meritage has shifted its focus to future first-time home buyers. As Hilton noted, 20% to 30% of the builder's current offerings address that buyer segment.
"We have retooled our floor plans in the Western U.S., and we are standardizing everything to be more efficient," he said.
And opportunities to acquire land at distressed prices in order to meet future demand are already in the works.
Meritage recently purchased lots in Arizona and Florida for "a fraction of the cost, in most cases for less than it costs to put in the horizontal improvements, such as streets, roads, and utilities, with no residual value for the land," according to Hilton.
But as Hilton pointed out, a significant barrier to land deals is that banks have yet to mark the land on their balance sheets to market.
"We have to be patient, understand, and believe we are at the bottom. Then we will see deals," he added.