Meritage Homes Corp., Scottsdale, Ariz. (NYSE:MTH) on Wednesday after market close reported a net loss of $0.9 million, or $0.03 per diluted share, in the fourth quarter of 2010, compared to net income of $43 million or $1.35 per diluted share in the fourth quarter of 2009. Wall Street was expecting a loss of four cents per share.
The loss in 2010 included $5 million of impairments offset by a $5 million net tax benefit, while 2009 net income included $39 million of impairments, offset by a $90 million net tax benefit. Excluding those items, Meritage reduced its pre-tax loss to $311,000 from $8 million in the prior-year quarter.
Home building revenue was down 23% to $214.6 million as homes closed dropped 30% to 837. Average prices rose to $256,000 from approximately $233,000 in the fourth quarter of 2009, reflecting a greater percentage of closings in move-up communities and in California, Colorado and Florida, higher-priced areas within Meritage's markets.
New orders rose 15% to 713 and new-order dollars rose 7% to $174 million despite a drop of 4% in average active communities. Sales per community increased 21% to 4.7 from 3.9 in 2009. The largest sales increases were in Texas, with 20% year-over-year growth, and Colorado, with 73% growth. No cancellation rate was reported.
Backlog at quarter's end was down 29% to 778 homes with a value of $201.8 million, down 30%. Meritage CEO Steven J. Hilton said the company closed a record high 93% of beginning backlog during the fourth quarter, with half of closings homes that were not under contract at the beginning of the quarter.
Gross margin rose to 15.8% from 6.2% in the prior-year quarter, including impairments, and to 18.1% from 14.9% excluding impairments. General and administrative expenses were down 28% from the same quarter of 2009, due mainly to accruals for lease abandonments and discretionary awards in 2009 that did not recur in the fourth quarter of 2010. Excluding those items, G&A was flat compared to 2009.
Meritage put approximately 7,000 lots under contract in 2010, including 63 new communities. At yearend, it controlled 15,224 lots representing approximately 4.1 years supply based on trailing twelve months closings, compared to a total of 12,906 lots or 3.2 years lot supply at December 31, 2009. Approximately 85% of total lots were owned at year-end 2010, compared to 77% in 2009, and 56% of year-end 2010 lots were purchased in the last two years.
For the full year, Meritage made a profit of $7 million, or $0.22 per diluted share, compared to a net loss of $66M or ($2.12) per diluted share in 2009. During the year, it reduced net debt-to-capital ratio to 28% from 31% in the prior year. Meritage ended the year with $413 million in cash and short-term investments, and no short-term debt. It issued $200 million of 7.15% senior notes due in 2020 and retired $195 million of notes due in 2014 and 2015 during the year and ended with senior note liabilities of $479.9 million, up from $479.1 million a year prior, and senior subordinated note liabilities of $125.9 million, flat with the year before.
For the year, home building revenues fell 2% to $940.4 million as homes closed fell 8% to 3,700. New orders were down 29% to 778; new order dollars fell 6% to $912.3 million.
"I believe Meritage is in the best shape it's ever been—stronger, leaner, faster and more nimble than ever before—and we're poised to take advantage of opportunities to grow and increase our profitability as the market recovers," said Hilton.
"We achieved our number one goal for 2010, which was to be profitable for the year," he added, "We ended the year with 29% fewer orders in backlog than we had a year ago, which will make it more challenging to be profitable in the first quarter of 2011. Even so, we expect to be more profitable in 2011 than we were in 2010."
Shares of MTH closed up a penny at $23.27 during regular trading Wednesday and were inactive after hours.
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