SCOTTSDALE, Ariz., Oct. 27, 2017 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, reported its third quarter results for the period ended September 30, 2017.

 
Summary Operating Results (unaudited)
(Dollars in thousands, except per share amounts)
 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2017   2016   % Chg   2017   2016   % Chg
Homes closed (units)   1,969     1,800     9 %   5,456     5,238     4 %
Home closing revenue   $ 805,008     $ 735,870     9 %   $ 2,263,405     $ 2,127,332     6 %
Average sales price - closings   $ 409     $ 409     %   $ 415     $ 406     2 %
Home orders (units)   1,874     1,737     8 %   6,162     5,797     6 %
Home order value   $ 765,027     $ 715,562     7 %   $ 2,536,448     $ 2,365,508     7 %
Average sales price - orders   $ 408     $ 412     (1 )%   $ 412     $ 408     1 %
Ending backlog (units)               3,333     3,251     3 %
Ending backlog value               $ 1,408,801     $ 1,375,857     2 %
Average sales price - backlog               $ 423     $ 423     %
Earnings before income taxes   $ 63,455     $ 53,802     18 %   $ 163,429     $ 141,723     15 %
Net earnings   $ 42,550     $ 36,887     15 %   $ 107,702     $ 97,734     10 %
Diluted EPS   $ 1.02     $ 0.88     16 %   $ 2.55     $ 2.33     9 %

 

MANAGEMENT COMMENTS

"We are pleased with our results for the third quarter of 2017, despite the disruptions caused by the hurricanes that hit Houston and Florida," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. "We grew our third quarter orders, home closings and revenue year-over-year, increased sales productivity in our East region, and made good progress on our strategic initiatives to expand earnings by improving our gross margins and managing overhead expenses for additional leverage. Our home closing margin improved to 18.1% and our overhead leverage improved by 80 basis points, helping to drive an 18% increase in pre-tax earnings and a 16% improvement in diluted earnings per share compared to last year's third quarter."

Mr. Hilton continued, "Considering the results we've achieved in the first nine months of the year and adjusting for delays due to weather events, we are modestly reducing our closings and revenue guidance while maintaining our 2017 earnings expectations due to our strong third quarter performance. We expect to deliver approximately 7,600-7,800 homes and closing revenue of $3.15-3.25 billion for the year. On that level of closings and revenue, we are maintaining our expectations for approximately $235-245 million in pre-tax earnings with full year 2017 gross margin in line with 2016."

He concluded, "Demand continues to be healthy across all of our markets, especially for our entry-level and LiVE.NOW. homes. More than ever, buyers appreciate that they can get Meritage's quality, energy efficiency and advanced technology in affordably-priced homes. As we continue to execute our strategy to serve the growing population of first-time buyers, we foresee additional growth opportunities for Meritage."

THIRD QUARTER RESULTS
  • Net earnings of $42.6 million ($1.02 per diluted share) for the third quarter of 2017, compared to prior year net earnings of $36.9 million ($0.88 per diluted share), primarily reflect higher home closing revenue and gross margins, combined with cost controls and improved overhead leverage. Earnings before income taxes increased 18% year-over-year.
  • The third quarter effective tax rate was 33% in 2017, compared to 31% in 2016. The lower rate in 2016 reflected the impact of energy tax credits captured on energy-efficient homes closed in 2016 and prior periods, which Congress has not extended for 2017, resulting in a higher projected effective tax rate this year.
  • Home closing revenue increased 9% over the prior year on higher closing volume. Despite increases in market prices of homes over 2016, average closing prices remained constant with the third quarter of 2016, as a higher percentage of home closings were lower-priced entry-level homes, consistent with the Company's strategic focus. Both the West and Central regions delivered 19% year-over-year increases in home closing revenue, reflecting strong growth in Arizona and Texas. A 12% decline in East region home closing revenue reflected 14% fewer closings due to fewer orders during the first half of 2017 than 2016, as well as delays due to Hurricane Irma.
  • Home closing gross margins increased to 18.1% for the third quarter of 2017, compared to 17.8% in the third quarter of 2016 and 17.7% in the second quarter of 2017. The margin improvement reflects higher margins in Texas and the West Region as well as improved leverage of construction overhead expenses overall.
  • Selling, general and administrative expenses totaled 10.9% of home closing revenue, an 80 bps improvement from 11.7% in the third quarter of 2016, reflecting successful cost controls and greater overhead leverage.
  • Total orders for the third quarter increased 8% year-over-year due to strong demand in Texas and improved sales execution in the East region. Orders increased 22% over the third quarter of 2016 in Texas, primarily due to a 26% increase in average active communities over the prior year. Total orders increased 13% in the East, primarily due to a 12% increase in absorptions (orders per average active community) during the quarter. Three of the five states in the region produced 20% or greater order growth over the third quarter of 2016, reflecting positive acceptance of new products in new communities, as well as better sales execution. A 7% decrease in average active communities in the West region resulted in a 6% decline in third-quarter orders for the region.
  • Total active community count was 250 at September 30, 2017, compared to 237 communities open at September 30, 2016, which translated to a 6% year-over-year increase in average active communities for the third quarter.
  • Average sales prices on closings and orders were consistent with the prior year, as general home price appreciation in many markets offset the growing percentage of entry-level homes relative to move-up.

YEAR TO DATE RESULTS
  • Net earnings increased to $107.7 million for the first three quarters of 2017, compared to $97.7 million for the first three quarters of 2016, with a 15% increase in pretax earnings.
  • Earnings growth year-to-date was primarily driven by a 6% increase in home closing revenue, resulting from a 4% increase in home closings and a 2% increase in average closing prices over 2016.
  • Higher home closing revenue led to a $21.8 million increase in home closing gross profit to $393.8 million in the first three quarters of 2017, compared to $372.1 million in the first three quarters of 2016, as home closing gross margins were relatively consistent in both years.
  • Total commissions and selling expenses improved by 30 basis points to 7.0% of year-to-date 2017 home closing revenue from 7.3% in 2016. In addition, total general and administrative expenses also declined 30 basis points to 4.0% of home closing revenue in the first three quarters of 2017, compared to 4.3% in 2016, resulting in a total improvement of 60 basis points in year-to-date selling, general and administrative expenses.
  • The effective tax rate for the first three quarters of 2017 was 34%, compared to 31% for the first three quarters of 2016, due to the expiration of energy tax credits that reduced the rate in 2016, but were unavailable in 2017.

BALANCE SHEET
  • Cash and cash equivalents at September 30, 2017, totaled $115.2 million, compared to $131.7 million at December 31, 2016, primarily reflecting the use of cash to fund the purchase and development of lots, as well as additional homes under construction, to meet Meritage's growth targets. Proceeds from the issuance of $300 million in new senior notes in June 2017 were used to repay borrowings under the Company's revolving credit facility and to retire all $126.5 million of the Company's 1.875% convertible senior notes.
  • A total of $285.6 million was invested in land and development during the third quarter of 2017 to meet current demand and position the company for future growth. Total spending on land and development year-to-date was $771.1 million in 2017, compared to $667.2 million through the third quarter of 2016.
  • Meritage ended the third quarter of 2017 with approximately 33,300 total lots owned or under control, compared to approximately 28,800 total lots at September 30, 2016, as the Company secured more than 2,400 new lots during the quarter. Approximately half of those additions were in Texas to meet continued strong demand, and approximately 70% of the newly controlled lots added during the quarter were for entry-level communities.
  • Debt-to-capital and net debt-to-capital ratios at September 30, 2017, were 45.9% and 43.6%, compared to 44.2% and 41.2%, respectively, at December 31, 2016, reflect the increased investment of cash into homes and land under development, while remaining well within management's target range for this key ratio.

CONFERENCE CALL

Management will host a conference call at 11:00 a.m. Eastern Time (8:00 a.m. in Arizona) today to discuss the Company's results. The call will be webcast with an accompanying slideshow available on the "Investor Relations" page of the Company's website at http://investors.meritagehomes.com. Telephone participants may avoid any delays by pre-registering for the call using the following link to receive a special dial-in number and PIN.

Conference Call registration link:  http://dpregister.com/10112737. 

Telephone participants who are unable to pre-register may dial in on 866-226-4948 on the day of the call. International dial-in number is 1-412-902-4125 or 1-855-669-9657 for Canada.

A replay of the call will be available beginning at approximately 1:00 p.m. ET on October 27 and extending through November 15, 2017, on the website noted above or by dialing 877-344-7529, 1-412-317-0088 for international or 1-855-669-9658 for Canada, and referencing conference number 10112737.

 
  Meritage Homes Corporation and Subsidiaries
  Consolidated Income Statements
  (In thousands, except per share data)
  (Unaudited)
   
    Three Months Ended September 30,   Nine Months Ended September 30,
    2017   2016   2017   2016
Homebuilding:              
  Home closing revenue $ 805,008     $ 735,870     $ 2,263,405     $ 2,127,332  
  Land closing revenue 589     16,987     16,942     21,187  
  Total closing revenue 805,597     752,857     2,280,347     2,148,519  
  Cost of home closings (659,350 )   (604,891 )   (1,869,569 )   (1,755,260 )
  Cost of land closings (1,646 )   (16,092 )   (15,504 )   (19,485 )
  Total cost of closings (660,996 )   (620,983 )   (1,885,073 )   (1,774,745 )
  Home closing gross profit 145,658     130,979     393,836     372,072  
  Land closing gross (loss)/profit (1,057 )   895     1,438     1,702  
  Total closing gross profit 144,601     131,874     395,274     373,774  
Financial Services:              
  Revenue 3,549     3,139     10,142     9,115  
  Expense (1,524 )   (1,398 )   (4,454 )   (4,152 )
  Earnings from financial services unconsolidated entities and other, net 3,489     4,215     9,673     10,802  
  Financial services profit 5,514     5,956     15,361     15,765  
Commissions and other sales costs (55,845 )   (52,478 )   (158,866 )   (155,034 )
General and administrative expenses (31,636 )   (33,258 )   (90,849 )   (91,774 )
(Loss)/earnings from other unconsolidated entities, net (91 )   440     852     856  
Interest expense (1,116 )   (167 )   (3,561 )   (5,127 )
Other income, net 2,028     1,435     5,218     3,263  
Earnings before income taxes 63,455     53,802     163,429     141,723  
Provision for income taxes (20,905 )   (16,915 )   (55,727 )   (43,989 )
Net earnings $ 42,550     $ 36,887     $ 107,702     $ 97,734  
               
Earnings per share:              
  Basic              
  Earnings per share $ 1.06     $ 0.92     $ 2.67     $ 2.45  
  Weighted average shares outstanding 40,323     40,022     40,273     39,958  
  Diluted              
  Earnings per share $ 1.02     $ 0.88     $ 2.55     $ 2.33  
  Weighted average shares outstanding 42,011     42,608     42,585     42,541  

 
Meritage Homes Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
    September 30, 2017   December 31, 2016
Assets:        
Cash and cash equivalents   $ 115,167     $ 131,702  
Other receivables   78,933     70,355  
Real estate (1)   2,762,269     2,422,063  
Real estate not owned   39,793      
Deposits on real estate under option or contract   67,547     85,556  
Investments in unconsolidated entities   16,378     17,097  
Property and equipment, net   32,080     33,202  
Deferred tax asset   56,870     53,320  
Prepaids, other assets and goodwill   83,121     75,396  
Total assets   $ 3,252,158     $ 2,888,691  
Liabilities:        
Accounts payable   $ 140,492     $ 140,682  
Accrued liabilities   193,102     170,852  
Home sale deposits   39,446     28,348  
Liabilities related to real estate not owned   35,768      
Loans payable and other borrowings   38,082     32,195  
Senior and convertible senior notes, net   1,266,160     1,095,119  
Total liabilities   1,713,050     1,467,196  
Stockholders' Equity:        
Preferred stock        
Common stock   403     400  
Additional paid-in capital   582,414     572,506  
Retained earnings   956,291     848,589  
Total stockholders' equity   1,539,108     1,421,495  
Total liabilities and stockholders' equity   $ 3,252,158     $ 2,888,691  
(1) Real estate - Allocated costs:        
Homes under contract under construction   $ 677,456     $ 508,927  
Unsold homes, completed and under construction   484,701     431,725  
Model homes   140,326     147,406  
Finished home sites and home sites under development   1,459,786     1,334,005  
Total real estate   $ 2,762,269     $ 2,422,063  

Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands - unaudited):
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2017   2016   2017   2016
Depreciation and amortization $ 4,199     $ 3,870     $ 12,071     $ 11,470  
               
Summary of Capitalized Interest:              
Capitalized interest, beginning of period $ 72,327     $ 64,682     $ 68,196     $ 61,202  
Interest incurred 21,024     17,372     58,199     52,644  
Interest expensed (1,116 )   (167 )   (3,561 )   (5,127 )
Interest amortized to cost of home and land closings (15,462 )   (14,256 )   (46,061 )   (41,088 )
Capitalized interest, end of period $ 76,773     $ 67,631     $ 76,773     $ 67,631  
               
  September 30, 2017   December 31, 2016        
Notes payable and other borrowings $ 1,304,242     $ 1,127,314          
Stockholders' equity 1,539,108     1,421,495          
Total capital 2,843,350     2,548,809          
Debt-to-capital 45.9 %   44.2 %        
Notes payable and other borrowings $ 1,304,242     $ 1,127,314          
Less: cash and cash equivalents $ (115,167 )   $ (131,702 )        
Net debt 1,189,075     995,612          
Stockholders' equity 1,539,108     1,421,495          
Total net capital $ 2,728,183     $ 2,417,107          
Net debt-to-capital 43.6 %   41.2 %        

 
Meritage Homes Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
    Nine Months Ended September 30,
    2017   2016
Cash flows from operating activities:        
Net earnings   $ 107,702     $ 97,734  
Adjustments to reconcile net earnings to net cash used in operating activities:        
Depreciation and amortization   12,071     11,470  
Stock-based compensation   9,898     11,042  
Excess income tax provision from stock-based awards       540  
Equity in earnings from unconsolidated entities   (10,525 )   (11,658 )
Distribution of earnings from unconsolidated entities   10,410     11,439  
Other   1,265     4,942  
Changes in assets and liabilities:        
Increase in real estate   (336,069 )   (318,490 )
Decrease/(increase) in deposits on real estate under option or contract   13,633     (3,160 )
Increase in other receivables, prepaids and other assets   (15,207 )   (14,201 )
Increase in accounts payable and accrued liabilities   21,298     61,206  
Increase in home sale deposits   11,098     791  
Net cash used in operating activities   (174,426 )   (148,345 )
Cash flows from investing activities:        
Investments in unconsolidated entities   (404 )   (242 )
Distributions of capital from unconsolidated entities   1,250      
Purchases of property and equipment   (12,038 )   (12,256 )
Proceeds from sales of property and equipment   251     144  
Maturities/sales of investments and securities   1,297     645  
Payments to purchase investments and securities   (1,297 )   (645 )
Net cash used in investing activities   (10,941 )   (12,354 )
Cash flows from financing activities:        
Proceeds from Credit Facility, net   10,000     25,000  
Repayment of loans payable and other borrowings   (10,491 )   (18,286 )
Repurchase of convertible senior notes   (126,691 )    
Proceeds from issuance of senior notes   300,000      
Payment of debt issuance costs   (3,986 )    
Excess income tax provision from stock-based awards       (540 )
Proceeds from stock option exercises       232  
Net cash provided by financing activities   168,832     6,406  
Net decrease in cash and cash equivalents   (16,535 )   (154,293 )
Beginning cash and cash equivalents   131,702     262,208  
Ending cash and cash equivalents   $ 115,167     $ 107,915  

 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Dollars in thousands)
(Unaudited)
 
    Three Months Ended September 30,
    2017   2016
    Homes   Value   Homes   Value
Homes Closed:                
Arizona   424     $ 141,249     253     $ 89,092  
California   261     154,731     251     142,056  
Colorado   135     77,728     167     84,114  
West Region   820     373,708     671     315,262  
Texas   647     236,759     542     199,499  
Central Region   647     236,759     542     199,499  
Florida   185     77,652     206     85,647  
Georgia   95     29,019     83     27,477  
North Carolina   107     48,129     177     71,641  
South Carolina   74     25,164     76     22,658  
Tennessee   41     14,577     45     13,686  
East Region   502     194,541     587     221,109  
Total   1,969     $ 805,008     1,800     $ 735,870  
Homes Ordered:                
Arizona   348     $ 116,757     345     $ 116,815  
California   200     124,339     216     125,920  
Colorado   92     55,459     121     66,213  
West Region   640     296,555     682     308,948  
Texas   593     213,241     488     178,934  
Central Region   593     213,241     488     178,934  
Florida   269     120,243     208     95,946  
Georgia   102     33,039     85     28,841  
North Carolina   147     59,976     149     61,537  
South Carolina   86     28,449     71     22,434  
Tennessee   37     13,524     54     18,922  
East Region   641     255,231     567     227,680  
Total   1,874     $ 765,027     1,737     $ 715,562  

    Nine Months Ended September 30,
    2017   2016
    Homes   Value   Homes   Value
Homes Closed:                
Arizona   1,139     $ 382,814     749     $ 258,139  
California   702     427,095     738     418,834  
Colorado   417     233,377     474     231,913  
West Region   2,258     1,043,286     1,961     908,886  
Texas   1,752     637,147     1,563     566,377  
Central Region   1,752     637,147     1,563     566,377  
Florida   518     225,674     619     252,311  
Georgia   223     74,860     229     76,874  
North Carolina   370     164,596     474     198,525  
South Carolina   217     75,085     231     71,577  
Tennessee   118     42,757     161     52,782  
East Region   1,446     582,972     1,714     652,069  
Total   5,456     $ 2,263,405     5,238     $ 2,127,332  
Homes Ordered:                
Arizona   1,148     $ 380,459     935     $ 322,807  
California   802     480,694     775     442,863  
Colorado   368     214,532     459     237,237  
West Region   2,318     1,075,685     2,169     1,002,907  
Texas   2,000     719,656     1,629     597,947  
Central Region   2,000     719,656     1,629     597,947  
Florida   791     342,754     702     295,453  
Georgia   270     88,306     305     102,392  
North Carolina   440     187,683     497     205,562  
South Carolina   224     76,827     296     95,123  
Tennessee   119     45,537     199     66,124  
East Region   1,844     741,107     1,999     764,654  
Total   6,162     $ 2,536,448     5,797     $ 2,365,508  
                 
Order Backlog:                
Arizona   453     $ 158,988     503     $ 182,574  
California   331     207,237     326     208,175  
Colorado   224     135,239     317     167,475  
West Region   1,008     501,464     1,146     558,224  
Texas   1,179     437,243     1,008     381,764  
Central Region   1,179     437,243     1,008     381,764  
Florida   526     233,534     370     161,148  
Georgia   138     46,809     171     58,944  
North Carolina   263     110,339     283     118,515  
South Carolina   123     42,378     153     53,657  
Tennessee   96     37,034     120     43,605  
East Region   1,146     470,094     1,097     435,869  
Total   3,333     $ 1,408,801     3,251     $ 1,375,857  

 
Meritage Homes Corporation and Subsidiaries
Operating Data
(Unaudited)
 
    Three Months Ended September 30,
    2017   2016
    Ending   Average   Ending   Average
Active Communities:                
Arizona   40     39.5     40     41.5  
California   24     25.0     29     27.0  
Colorado   9     9.5     10     11.0  
West Region   73     74.0     79     79.5  
Texas   93     92.5     74     73.5  
Central Region   93     92.5     74     73.5  
Florida   29     29.5     26     26.0  
Georgia   17     18.0     17     17.0  
North Carolina   18     19.0     19     20.5  
South Carolina   14     14.0     15     15.5  
Tennessee   6     6.5     7     7.0  
East Region   84     87.0     84     86.0  
Total   250     253.5     237     239.0  

    Nine Months Ended September 30,
    2017   2016
    Ending   Average   Ending   Average
Active Communities:                
Arizona   40     41.0     40     40.5  
California   24     26.0     29     26.5  
Colorado   9     9.5     10     13.0  
West Region   73     76.5     79     80.0  
Texas   93     86.5     74     73.0  
Central Region   93     86.5     74     73.0  
Florida   29     28.0     26     28.5  
Georgia   17     17.0     17     17.0  
North Carolina   18     17.5     19     22.5  
South Carolina   14     14.5     15     16.5  
Tennessee   6     6.5     7     8.0  
East Region   84     83.5     84     92.5  
Total   250     246.5     237     245.5  

About Meritage Homes Corporation

Meritage Homes is the eighth-largest public homebuilder in the United States, based on homes closed in 2016. Meritage Homes builds and sells single-family homes for first- time, move-up, luxury and active adult buyers across the Western, Southern and Southeastern United States. Meritage Homes builds in markets including Sacramento, San Francisco Bay area, southern coastal and Inland Empire markets in California; Houston, Dallas-Ft. Worth, Austin and San Antonio, Texas; Phoenix/Scottsdale, Green Valley and Tucson, Arizona; Denver, Colorado; Orlando, Tampa and South Florida; Raleigh and Charlotte, North Carolina; Greenville-Spartanburg and York County, South Carolina; Nashville, Tennessee; and Atlanta, Georgia.

Meritage Homes has designed and built over 100,000 homes in its 32-year history and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage Homes is the industry leader in energy-efficient homebuilding and has received the U.S. Environmental Protection Agency's ENERGY STAR Partner of the Year for Sustained Excellence Award every year since 2013 for innovation and industry leadership in energy efficient homebuilding.

For more information, visit www.meritagehomes.com. 

The information included in this press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's projected home closings, home closing revenue, gross margins and pre-tax earnings for the full year 2017, as well as expected future growth and earnings expansion opportunities.

Such statements are based on the current beliefs and expectations of Company management, and current market conditions, which are subject to significant uncertainties and fluctuations. Actual results may differ from those set forth in the forward-looking statements. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events or changes in these expectations. Meritage's business is subject to a number of risks and uncertainties. As a result of those risks and uncertainties, the Company's stock and note prices may fluctuate dramatically. These risks and uncertainties include, but are not limited to, the following: potential adverse impacts on our Houston and Florida sales, closings, revenue and costs due to Hurricanes Harvey and Irma; the availability and cost of finished lots and undeveloped land; changes in interest rates and the availability and pricing of residential mortgages; the success of strategic initiatives; shortages in the availability and cost of labor; changes in tax laws that adversely impact us or our homebuyers; the ability of our potential buyers to sell their existing homes; cancellation rates; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slow absorption rates; impairments of our real estate inventory; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest or option deposits; our potential exposure to and impacts from natural disasters or severe weather conditions; competition; construction defect and home warranty claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance bonds in connection with our development work; the loss of key personnel; enactment of new laws or regulations or our failure to comply with laws and regulations; our limited geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations; the effect of legislative and other governmental actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our energy-efficient technologies by our competitors; our exposure to information technology failures and security breaches; and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2016 and our subsequent Forms 10-Q, under the caption "Risk Factors," which can be found on our website.

Contacts: Brent Anderson, VP Investor Relations  (972) 580-6360 (office) investors@meritagehomes.com 

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