Meritage Homes Corp., Scottsdale, Az. (NYSE:MTH) Friday morning reported net income of $562,000 or $0.02 per diluted share for the second quarter ended June 30, down from a gain of $4.2 million or $0.13 per diluted share for the second quarter of 2010 but ahead of analyst expectations of a loss of four cents per share.
The results included impairment charges of $590,000.
Home closing revenue dropped 24% to $220.1 million as closings declined 29% to 856, partially offset by a 7% increase in average closing prices.
New orders rose 1% to 910 and the average price was up 2%, pushing new-order dollars up 3% from last year's quarter to $236 million. The cancellation rate fell to 15% from 20% a year earlier. Average sales per community improved to 6.4 from 6.1 in the prior year quarter and 5.8 in the first quarter of this year, with the strongest gains in Colorado and Florida, which reported absorption rates of 8.2 and 10.7 sales per community, respectively.
Active selling communities rose to 145 on June 30, 2011 compared to 141 at the beginning of the quarter as the company opened 28 new communities while selling out of 24 communities. At the close of last year's quarter, Meritage had 148 active communities.
Backlog increased 6% to 994 homes with a total value of $261 million, compared to $245 million at the end of this year's first quarter and $293 million at the close of the 2010 second quarter.
Home building gross margin was 18.0%, down from 18.2% a year earlier. Adjusted gross margin excluding impairments was flat with last year's quarter at 18.3%. SG&A or $33.8 million was down in dollar terms from $38.3 million in last year's quarter but up to 15.4% of sales from 13.1% a year earlier.
The company did not provide a breakdown of its land position but reported that it acquired 1,200 lots during the quarter and now controls approximately 15,800 total lots, roughly a 4.9-year supply.
Meritage ended the quarter with $377 million in cash and cash equivalents, restricted cash and securities. The net debt to total capital ratio was 31.5% at June 30, 2011, compared to of 24.8% at June 30, 2010.
"Year-over-year sales comparisons turned positive in May and June as anticipated, ending the difficult comparisons caused by the federal home buyer tax credit that expired in April last year," said Steven J. Hilton, chairman and CEO. "We believe this trend will continue and our second half results in 2011 should compare favorably to last year."
He continued, "Our goal is to be profitable in 2011 for the second consecutive year coming out of this recession, and we believe that we are well positioned to accomplish that goal, based on the performance we're achieving in our newer communities, combined with diligent cost control."
Michael Rehaut, home building analyst at J.P. Morgan, said in a note to investors, "Overall, we believe results are slightly above investor expectations. Moreover, MTH noted that it is 'well positioned' to achieve its goal of profitability for 2011, better than last quarters language of there being a 'reasonable opportunity' to be profitable."
Adam Rudiger at Wells Fargo wrote, "While many of its peers struggle to reach profitability, Meritage has delivered its fourth profitable quarter out of the last six , highlighting our view that the company is ahead of several peers in right-sizing its business to currently depressed levels of demand. We also believe MTH's relatively high dependence on Texas (56% of closings this quarter) helps explain its relative outperformance."
Shares of Meritage were up more than 5.5% at $21.92 in early trading as the rest of the public builder group was posting losses on the session.