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Meritage Homes Posts Big Beat

Shares jump 9% after better-than-expected earnings, though new orders declined.

Meritage Homes


handily beat analyst estimates for its first-quarter earnings, but the builder's new-order numbers were a little weak -- though not horrible.

Meritage's earnings rose to $79.7 million, or $2.86 a share, from $24.2 million, or 86 cents a share, a year ago. Analysts expected a profit of $2.44 a share, according to Thomson First Call.

Shares recently jumped $5.46, or 8.9%, to $66.81.

The company's home-closing revenue increased 54% to $846.4 million, driven by a larger-than-expected number of closings and a 9% increase in the average selling price of those homes. The home-closing gross margin increased to 25.3% from 21.7% a year earlier.

But looking to the future, the outlook is murkier. New orders fell 2% on a unit basis to 2,590, and the value of those contracts fell 6% to $832.6 million.

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The new orders were heavily weighted toward Texas and Arizona, with California orders coming in weaker than several analysts' estimates.

Orders rose 35% in Texas, fell 50% in California and dropped 21% in Arizona. Florida sales came in flat despite a big jump in communities, wrote A.G. Edwards analyst Greg Gieber in a research report.

The average sales price of new orders fell to $321,000 in the quarter from $334,000 a year earlier, due to a mix shift of more sales in Texas than in higher-priced California. The continued shift this year will hurt profits, because of the lower margins in Texas and lower average selling prices, Bank of America analyst Daniel Oppenheim wrote in a research note.

However, if Meritage can keep the first quarter's order pace intact for coming quarters, things

could bode well for the stock.

The company reiterated its guidance of EPS $11.25 to $11.50 this year and $3.8 billion to $3.9 billion of revenue.

Management said on a conference call that 2007 revenue could be anywhere from flat to up 10%, but noted that the guidance is very preliminary.