Meritage Home Corp.(NYSE:MTH) at market close Monday reported a net loss for the first quarter 2008 of $45 million ($1.72 per share), including $60 million of pre-tax charges for real estate-related and joint venture valuation adjustments.
First quarter 2008 home closing revenue declined 35% year over year to $371.6 million on a 26% drop in homes closed to 1,328 and a 13% reduction in average closing price to $277,000. The central region experienced the greatest declines in the first quarter, primarily in Arizona, where closings and closing revenue were lower than the prior year's first quarter by 58% to 441 and 66% to $119.2 million, respectively.
Sales fell 21% from the same quarter last year to 1,634 homes with an aggregate value of $371.6 million, a 34% drop from a year ago. The cancellation rate for the quarter was 27%, the same as the comparable quarter last year.
Meritage drew down its backlog by 35%, to 2,594 homes with a value of $718.5 million, a drop in 43% in value from $1.26 billion at the end of 2007's first quarter. However, the company reported its backlog was up 13% from yearend 2007 to 2,594 contracts.
The company generated $80 million in positive cash flow from operations during the quarter, which it used to pay down nearly all of its outstanding bank debt. It also reduced its spec inventory by 31% to 768 homes and its lot count to 24,591, a 3.4-year supply, with 60% under option.
"We made significant progress on our objectives again this quarter, strengthening our balance sheet and improving our liquidity," said Steven J.Hilton, chairman and CEO, in a statement. "We generated significant positive cash flow, paid off nearly all of our bank debt, reduced our inventory of unsold homes, kept lot purchases below home starts and further reduced our total lot supply."
He continued, "We're now within our desired range of three to four spec homes per community, and I commend our sales teams for achieving this during very difficult market conditions."
The problem spots for Meritage continue to be Arizona and California, where two-thirds of the total 2008 write offs were taken. These charge included a charge of $14 million to write off and fully reserve any further obligations related to a joint venture in the northwest Phoenix area, $30 million for write-downs of inventory on continuing projects, $14 million of walk-away costs on terminated projects, and $16 million from joint venture impairments.
Said Hilton, "We purchased just 889 lots under option contracts during the quarter, while starting 1,135 new homes. That's 60% fewer lot purchases than a year ago, with 65% of those lot purchases in Texas. Our objective is to limit our investment and supply of owned lots by selling and starting more homes than we're purchasing under option contracts. We brought our total lot supply down to 24,591 at March 31, 2008, or about 3.4 years supply based on trailing twelve months deliveries, with 40% of these owned and 60% optioned. A year ago, our total lot supply was 41,936, so we've reduced that by 41% in just the last year."
Meritage also said it completed an offering of common stock on April 25, issuing approximately 4.3 million shares and raising approximately $83 million of additional cash. The stock closed up 4.9% at $21.83 on the NYSE on heavier-than-normal volume, then slipped back to $21.54 in after-hours trading.