Meritage Homes Corp., Scottsdale, Az. (NYSE:MTH) on Tuesday after market close reported net income of $4.2 million ($0.13 per diluted share) for the second quarter ended June 30, compared to a net loss of $73.6 million or $2.37 per share in the same quarter of 2009. The second quarter results included impairments of $0.3 million in 2010, compared to $66.6 million in 2009.
Analysts were expecting a profit of $0.12 per share. Shares of Meritage closed down 1.2% in regular trading but were up 1.7% at $18.28 in the after-hours market on the news.
Revenue was up 32% to $291.4 million as closings rose 36% to 1,207.
New orders, however, fell 22% to 900, partly due to a 15% reduction in active community count from the same period last year.
Meritage CEO Steven J. Hilton, in the first builder commentary on the post-tax credit sales slowdown of this earnings season, said, "The decline in sales following the April 30, 2010 contract deadline for the home buyer tax credit was more significant than we expected, and surprising because we didn't experience a significant increase in spring sales until the last few weeks of April. However, we are hopeful for a relatively short hangover effect, similar to what the auto industry experienced with the 'cash for clunkers' program. Based on our second-quarter sales, we are anticipating lower third quarter closings and are looking for improving sales in the latter part of the year."
Average sales per community for the second quarter of 2010 was 6.1, down slightly from a 6.6 average in 2009 and 7.0 in the first quarter of 2010.The company's Texas sales were off 305 on a 25% cut in community count and accounted for 51% of total sales, down from 57% in the prior year quarter.
Average sales per community for the second quarter of 2010 was 6.1, down6.6 in 2009 and 7.0 in the first quarter of 2010.
The company's average sales price increased 11% for the quarter to $254,000, the result of a more sales coming from what the company called "closer-in communities that command higher prices than many older communities" as well as a greater mix of sales coming for California and Florida, where average prices are higher. The company said 20% of second-quarter closings came from newer communities.
Backlog was down 34.5% to 1,044 homes with a value of $292.6 million, down from $382.3 million at the end of last year's quarter.
Gross margin excluding impairments improved to 18.3% in the 2010 quarter from 12.3% in the comparable period in 2009. Incliding impairments, it was 18.2% compared to a negative 17.7%.
During the quarter, the company opened eight new communities with recently acquired lots, including its energy efficient Lyons Gate community in Arizona. It also contracted for approximately 2,400 new lots in 22 new communities and 6 new phases for existing communities.
Meritage used $54.9 million to purchase approximately 1,100 lots during the quarter.
The company has been actively acquiring lots for more than a year. Said Hilton, "While increased competition has driven lot prices up from the historically very low prices we encountered last year, we are still finding an adequate supply of available lots in good locations, and are acquiring lots at prices we believe will allow us to earn near-normal margins and attractive returns, without assuming inflation in home prices."
Meritage has contracted for more than 8,800 new lots since the beginning of 2009, and now controls approximately 14,450 total lots, equivalent to a 3.4 year supply based on trailing twelve months closings. "Since we have a relatively small lot supply, and approximately 45% of those lots have been acquired in the last eighteen months at greatly reduced prices, we are achieving higher margins while at the same time lowering our risk and maintaining flexibility to respond to changing market conditions," Hilton said.
The company ended the quarter with $442.1 million in total cash and cash equivalents, restricted cash and short-term investments, up from $391.3 million at yearend, 2009. The company's net debt to total capital ratio was 24.8% at June 30, 2010, down from 32.6% at June 30, 2009.
In April, Meritage issued $200 million of 7.15% senior notes due in 2020 and used the proceeds to retire its $130 million outstanding principal amount of notes due in 2014 and $65 million of its 2015 notes. The closeout resulted in a $3.5 million loss on early extinguishment of debt. The companywas carrying $479.6 million in senior notes and $125.9 million in senior subordinated notes on its balance sheet at quarter's end.
Said Hilton, "Although we can't predict when the market will improve, we are confident that it will improve."
Learn more about markets featured in this article: Phoenix, AZ.