Meritage Homes Corp. (NYSE:MTH), Scottsdale, Ariz., after market close Wednesday reported net earnings of $3 million ($0.08 per diluted share) for the first quarter of 2010, compared to a net loss of $18 million (-$0.60) per diluted share in the first quarter of 2009. It was the first quarter in three years in which Meritage reported a pre-tax profit.
The results included impairment charge of $500,000 and a $2.4 million gain from a legal settlement in 2010 and a $2.8 million gain on early extinguishment of debt in 2009. The 2009 results included $10 million of pre-tax charges due to real estate-related impairments.
Revenues fell 12.7% to $201.8 million as closing fell 13% to 808 and closing revenue fell 13% to $200.5 million. New orders rose 8% to 1,064 and new-order dollars increased 16% to $268.5 million. The company reported gains of 113% in California and 39% in Arizona. Average sales-per-community increased by approximately 23% to 7.0 in the quarter from 5.7 in the same period last year The cancellation rate fell to 18% in the 2010 quarter from 26% in 2009. Sales in Texas were 12% lower year over year, primarily due to 16% fewer actively selling communities.
Backlog was up 1% to 1,351 units with an aggregate value of $355.4 million.
Community count was 149 at quarter's end, compared to 170 at the end of the prior-year quarter. During the quarter, 19% of closings and related revenue were in newer communities, nearly double the level of two quarters ago. The company said it expected that percentage to increase to 35%-40% by the end of 2010. Sixteen new communities were opened for sales in the first quarter; the company said it expects to open more than 20 new communities over the next six months.
Total home closing gross margin improved to 18.9% in 2010, from 7.5% in 2009. Excluding impairments from the cost of sales, comparative gross margins were 19.2% and 12.0% for 2010 and 2009, respectively. SG&A was down by roughly $1 million to approximately $32 million.
The company ended the quarter with $242.7 million in cash, $175.7 million in securities and $16.2 million in restricted cash. It also was carrying $604.9 million in senior notes and senior subordinated notes on its books. The company calculated its net debt-to-capital ratio at 25.8%, down from 35.1% at the end of 2009.
"While the overall housing market has improved nominally, we believe our success has been primarily driven by our acquisitions of new communities and pricing strategies based on robust market research," said Steven J. Hilton, chairman and CEO. "We acquired new communities in healthier sub-markets identified by our proprietary market research, at prices we believe will allow us to earn near-normal margins and attractive returns," he continued, adding, "We have contracted for more than 5,500 new lots since the beginning of 2009, and now control approximately 13,000 total lots equivalent to a 3.4 year supply based on trailing twelve months closings."
At quarter's end, Meritage owned 78% of its lots under control. By comparison, Meritage controlled approximately 15,000 lots a year earlier, 55% owned.
"We have successfully transitioned from more than 90% optioned lots at our peak to nearly 80% owned currently, and have already deployed the capital required to support that transition," said Mr. Hilton.
In April 2010, Meritage issued $200 million of 7.15% senior notes due in 2020 and will use the proceeds to retire its $130 million outstanding principal amount of notes due in 2014 and repurchase $65 million of its 2015 notes through tender offers that expire on May 3, 2010. Meritage currently estimates it will take a $3.2 million loss on early extinguishment of debt in the second quarter of 2010.
Shares of Meritage were down 0.7% in after market trading Wednesday.