Meritage Homes Corp. Reports Operating Results (10-Q)
Meritage Homes Corp. has a market cap of $714.6 million; its shares were traded at around $22.33 with and P/S ratio of 0.7. MTH is in the portfolios of Steven Cohen of SAC Capital Advisors, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: Total home closing revenue was $200.6 million for the quarter ended March 31, 2010, decreasing 13.2% from $231.0 million for 2009. We earned net income of $2.7 million in 2010 compared to a loss of ($18.4) million in 2009. The first three months of 2010 represent the first quarter in three years where we have earned a positive pre-tax net income including impairments. Our 2010 results include $542,000 (pre-tax) of real estate-related impairments, and our 2009 results include $10.5 million (pre-tax) of real estate-related impairments. Additionally, 2010 results include $2.4 million in income related to a successful legal settlement award, and 2009 results include a $2.8 million gain on the early extinguishment of debt. The lower impairments across the Company in the first three months of 2010 contributed to the increase of 11.4% in gross margin on home closing up to 18.9%, as compared to 7.5% for the same period of 2009. Margins in the current quarter were also aided by our efficiency and cost-cutting initiatives that have been implemented over the last several quarters.
At March 31, 2010, our backlog of $355.4 million was up 23.6% from $287.5 million at December 31, 2009. Normal seasonality during the stronger spring selling season, coupled with increased home sales, and rising sales prices were primarily responsible for the increase in ending backlog. Our average sales price for home orders increased 7.3% to $252.3 during the first quarter of 2010 as compared to $235.2 in the same period of 2009. The increase is primarily due to the mix of our sales with increased volumes from our markets with higher average prices such as California and Colorado. Our cancellation rate on sales orders as a percentage of gross sales decreased in 2010 to 18%, from 24% for the year ended December 31, 2009, and 26% in the first quarter of 2009, reflecting some stabilization of demand for homes and consumer confidence during the year. Although our cancellation rates decreased significantly during the first three months of 2010, our cancellations for the remainder of 2010 may be more volatile due to the continuing uncertainty in todays markets.
West. In the first quarter of 2010, home closings in our West Region decreased just three units to 127 with a value of $41.4 million, a $888,000 decrease in home closing revenue as compared to the first quarter of 2009, primarily driven by the under-performance of our Nevada market with an offsetting pick-up in our California communities. California increased its home closings by 14.1% and its home closing revenue by $3.7 million over the prior year. The Regions 60-unit, or 75.0% increase in sales in the first quarter of 2010 as compared to the same period in 2009 contributed to our ending backlog of $41.5 million, a $16.2 million, or 63.8% increase over the prior year. We believe the Regions increases reflect the California markets response to the leveling of home prices and the roll-out of new subdivisions that provide quality homes at affordable prices and that are designed to compete with resales and foreclosures. As California was one of the first markets impacted by the downturn in 2006, we believe it will also be one of the first to pull out of the current constrained market condi
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