Meritage Homes Corporation's (MTH) first-quarter 2014 earnings per share of 62 cents missed the Zacks Consensus Estimate of 64 cents by 3.1%. We believe slowdown in order trends led to the earnings miss. However, earnings per share increased 94.0% year over year.
Total revenue in the first quarter of 2014 amounted to $408.4 million, up 21.4% year over year, on the back of a double-digit increase in home closing revenues and average selling prices. Reported revenues however missed the Zacks Consensus Estimate of $430 million by 5%.
Quarter in Detail
Meritage’s home closing revenues were $405.8 million, increasing 22.7% from the prior-year quarter. Year-over-year growth in home closing revenues was attributable to a 5% increase in the number of homes closed and a 16% hike in average closing prices.
Net sales orders declined 1.4% year over year to 1,525 units during the quarter, reflecting slower sales pace across the Western region. The Western region reported 26% decline in new sales order. We note that another homebuilder, NVR, Inc. (NVR) also witnessed a decline in orders in the first quarter of 2014, the results of which were announced on Apr 21, 2014. The value of Meritage’s net orders rose 7% to $555.0 million. The company had 189 active communities as of Mar 31, 2014 compared with 168 as of Mar 31, 2013.
The company started raising prices in most of its communities with market demand gaining momentum. Accordingly, the average selling price of the closings shot up 16% in the quarter to $366,000.
Meritage’s backlog totaled 2,269 homes as of Mar 31, 2014, up 15% from 1,967 homes as of Mar 31, 2013. The value of backlog grew 25% year over year to $835.9 million in the quarter, owing to stronger demand and an 8% increase in prices.
Meritage’s adjusted home closing gross margin expanded 330 basis points year over year to 22.8% in the first quarter of 2014, driven by price appreciation, which offset costs of construction and land. Pre-tax margin rose 480 bps to 9.7% in the first quarter 2014.
2014 Outlook
The company expects home closing gross margin in 2014 to be flat year over year, owing to lower pricing power and increased land costs. The company continues to expect community count in the range of 210 – 220 by the end of 2014.
Meritage Homes Corporation currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the homebuilding sector that deserve a mention include William Lyon Homes (WLH) and PulteGroup, Inc. (PHM). While William Lyon Homes sports a Zacks Rank #1 (Strong Buy), PulteGroup carries a Zacks Rank #2 (Buy).
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