SCOTTSDALE, Ariz., July 27, 2023 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (: MTH), the fifth-largest U.S. homebuilder, reported second quarter results for the period ended June 30, 2023.
| Summary Operating Results (unaudited) (Dollars in thousands, except per share amounts) | ||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| 2023 | 2022 | % Chg | 2023 | 2022 | % Chg | |||||||||||||
| Homes closed (units) | 3,490 | 3,221 | 8 | % | 6,387 | 6,079 | 5 | % | ||||||||||
| Home closing revenue | $ | 1,543,021 | $ | 1,408,947 | 10 | % | $ | 2,804,944 | $ | 2,654,403 | 6 | % | ||||||
| Average sales price — closings | $ | 442 | $ | 437 | 1 | % | $ | 439 | $ | 437 | — | % | ||||||
| Home orders (units) | 3,340 | 3,767 | (11) | % | 6,827 | 7,641 | (11) | % | ||||||||||
| Home order value | $ | 1,474,713 | $ | 1,809,870 | (19) | % | $ | 2,981,606 | $ | 3,577,580 | (17) | % | ||||||
| Average sales price — orders | $ | 442 | $ | 480 | (8) | % | $ | 437 | $ | 468 | (7) | % | ||||||
| Ending backlog (units) | 3,772 | 7,241 | (48) | % | ||||||||||||||
| Ending backlog value | $ | 1,687,536 | $ | 3,438,853 | (51) | % | ||||||||||||
| Average sales price — backlog | $ | 447 | $ | 475 | (6) | % | ||||||||||||
| Earnings before income taxes | $ | 239,524 | $ | 331,695 | (28) | % | $ | 404,827 | $ | 617,578 | (34) | % | ||||||
| Net earnings | $ | 186,836 | $ | 250,084 | (25) | % | $ | 318,137 | $ | 467,338 | (32) | % | ||||||
| Diluted EPS | $ | 5.02 | $ | 6.77 | (26) | % | $ | 8.56 | $ | 12.55 | (32) | % | ||||||
MANAGEMENT COMMENTS
"Homebuying demand in the second quarter of 2023 remained strong as homebuyers acclimated to the higher mortgage interest rates. The new home market continues to benefit from the sustained shortage of resale homes and favorable demographic trends, translating to quarterly sales per community near our absorption target of 4 net sales per month," said Steven J. Hilton, executive chairman of Meritage Homes. "In the second quarter of 2023, our nearly 90% backlog conversion driven by our spec strategy led to our highest second quarter of home closings and home closing revenue."
"Home closings were 3,490 this quarter, 8% greater than prior year, highlighting our effort to improve cycle times. Nearly 1,100 homes were sold and delivered within the quarter from our available inventory of completed and near-completed homes," added Phillippe Lord, chief executive officer of Meritage Homes. "Our second quarter 2023 home closing revenue of $1.5 billion combined with a strong home closing gross margin of 24.4% and SG&A leverage of 9.6% led to diluted EPS of $5.02 this quarter."
"Given the healthy demand environment, our second quarter 2023 sales orders totaled 3,340 homes, which was 11% lower year-over-year. This decline resulted from the pull-forward of sales in the prior year, as we were one of the first builders at that time to offer expansive rate locks. In the second quarter of 2022, Meritage was one of only two builders with positive year-over-year sales order growth,” Mr. Lord continued. “The second quarter 2023 average absorption pace of 3.9 per month was down from 4.4 per month in the prior year. Timing of community openings and closings impacted the calculation of the current quarter's sales orders pace.”
"We ended the quarter with 291 active communities at June 30, 2023, which was 5% higher sequentially compared to March 31, 2023, yet 4% lower than prior year's 303 active communities. During the quarter, we invested in growth, spending $409 million on land acquisition and development. Approximately 2,800 net new lots were secured, more than doubling year-over-year, bringing our total lot supply to nearly 60,000 at June 30, 2023 or 4.1 years supply," said Mr. Lord.
"We continue to generate positive cash flow and return capital to shareholders via our $0.27 per share cash dividend this quarter," remarked Mr. Lord. "Since we had nothing drawn under our credit facility, $1.2 billion of cash and a negative net debt-to-capital of (0.2)% at June 30, 2023, we feel confident that we have ample liquidity and a strong balance sheet."
Mr. Lord concluded, "As the housing market continues to normalize, we are projecting 13,300-13,800 home closings for full year 2023, which we anticipate will generate home closing revenue of $5.85-6.07 billion. Home closing gross margin is projected to be in the low 24% range. With an estimated effective tax rate of 22.5%, we expect diluted EPS to be in the range of $19.12-19.80 for full year 2023."
SECOND QUARTER RESULTS
- Orders of 3,340 homes for the second quarter of 2023 decreased 11% year-over-year, reflecting an 11% decrease in average absorption pace to 3.9 per month from 4.4 per month in the second quarter of 2022. Second quarter 2023 average community count remained consistent with prior year. Entry-level represented 85% of second quarter 2023 sales orders, which compared to 86% in the prior year. Average sales price ("ASP") on orders in the second quarter of 2023 of $442,000 was down 8% from the second quarter of 2022.
- The 10% year-over-year increase in home closing revenue to $1.5 billion resulted from 8% higher home closing volume and a 1% increase in ASP on closings due to a greater number of closings in higher ASP markets.
- Home closing gross margin declined 720 bps to 24.4% in the second quarter 2023 from 31.6% in the prior year from greater sales incentives and continued elevated direct costs. Our use of mortgage rate locks and buy-downs did not begin to impact our home closing gross margins until the latter half of 2022.
- Selling, general and administrative expenses ("SG&A") as a percentage of second quarter 2023 home closing revenue of 9.6% deteriorated 130 bps from 8.3% in the second quarter of 2022 as a result of higher broker commissions and marketing costs, which reflect the current sales environment, although sequentially marketing costs decreased from the first quarter of 2023.
- Second quarter 2023 other income, net of $12.9 million increased from an expense of $0.5 million in 2022, and consists mainly of higher interest income earned on a larger cash balance.
- The second quarter effective income tax rate was 22.0% in 2023 compared to 24.6% in 2022. The 2023 rate benefited from earned eligible energy tax credits on qualifying homes under the Internal Revenue Code's Inflation Reduction Act ("IRA"). There was no such benefit recognized in the second quarter of 2022.
- Net earnings were $186.8 million ($5.02 per diluted share) for the second quarter of 2023, a 25% decrease from $250.1 million ($6.77 per diluted share) for the second quarter of 2022. Lower gross margin and deleveraging of overhead were partially offset by increased home closing revenue and the favorable tax rate, which resulted in a 26% year-over-year decrease in diluted EPS.
YEAR TO DATE RESULTS
- Total sales orders for the first half of 2023 decreased 11% over the prior year, driven by an 11% decrease in average absorption pace and a slight increase in average communities compared to the first half of 2022.
- Home closing revenue increased 6% in the first half of 2023 to $2.8 billion due to a 5% increase in home closing volume and slight increase in ASP on closings due to geographic mix.
- Home closing gross margin declined 750 bps to 23.5% in the first half of 2023 from 31.0% in the prior year as a result of greater sales incentives and continued elevated direct costs. Our use of mortgage rate locks and buy-downs did not begin to impact our home closing gross margins until the second half of 2022.
- SG&A expenses of 9.9% of home closing revenue deteriorated from 8.4% in the prior year given higher broker commissions and marketing costs.
- The first half 2023 other income, net of $21.7 million increased from an expense of $0.8 million in 2022, due to higher interest income earned on a larger cash balance.
- The effective tax rate for the first half of 2023 was 21.4%, compared to 24.3% for the first half of 2022. The 2023 rate benefited from earned eligible energy tax credits on qualifying homes under the IRA. There was no such benefit recognized in the first half of 2022.
- Net earnings were $318.1 million ($8.56 per diluted share) for the first half of 2023, a 32% decrease from $467.3 million ($12.55 per diluted share) for the first half of 2022, primarily reflecting lower gross margin and deleveraging of overhead, partially offset by higher home closing revenue and the favorable tax rate.
BALANCE SHEET
- Cash and cash equivalents at June 30, 2023 totaled $1.2 billion, compared to $861.6 million at December 31, 2022, primarily as a result of retained cash from earnings over the past year.
- A total of about 60,000 lots were owned or controlled as of June 30, 2023, compared to approximately 71,000 total lots at June 30, 2022. We added over 2,800 net new lots in the second quarter of 2023, representing an estimated 26 future communities, all of which are for entry-level product.
- Debt-to-capital and net debt-to-capital ratios were 21.4% and (0.2)%, respectively, at June 30, 2023, which compared to 22.6% and 6.8%, respectively, at December 31, 2022.
- The Company declared and paid cash dividends of $0.27 per share in the second quarter of 2023, totaling $9.9 million. Year to date, $19.9 million was paid in dividends.
- The Company repurchased 93,297 shares of stock for a total of $10.0 million during the first half of 2023. There were no share repurchases during the current quarter. As of June 30, 2023, $234.1 million remained available to repurchase under our authorized share repurchase program.
CONFERENCE CALL
Management will host a conference call to discuss its second quarter 2023 results at 8:00 a.m. Pacific Daylight Time (11:00 a.m. Eastern Daylight Time) on Friday, July 28, 2023. The call will be webcast live with an accompanying slideshow available on the "Investor Relations" page of the Company's website at https://investors.meritagehomes.com. Telephone participants will be able to join by dialing in to 1-877-407-6951 US toll free or 1-412-902-0046 on the day of the call.
A replay of the call will be available via webcast beginning at approximately 11:00 a.m. Pacific Daylight Time (2:00 p.m. Eastern Daylight Time) on July 28, 2023 and extending through August 10, 2023, at https://investors.meritagehomes.com.
| Meritage Homes Corporation and Subsidiaries Consolidated Income Statements (In thousands, except per share data) (Unaudited) | |||||||||||||||
| Three Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | Change $ | Change % | ||||||||||||
| Homebuilding: | |||||||||||||||
| Home closing revenue | $ | 1,543,021 | $ | 1,408,947 | $ | 134,074 | 10 | % | |||||||
| Land closing revenue | 24,379 | 3,434 | 20,945 | 610 | % | ||||||||||
| Total closing revenue | 1,567,400 | 1,412,381 | 155,019 | 11 | % | ||||||||||
| Cost of home closings | (1,166,041 | ) | (964,208 | ) | 201,833 | 21 | % | ||||||||
| Cost of land closings | (24,202 | ) | (2,784 | ) | 21,418 | 769 | % | ||||||||
| Total cost of closings | (1,190,243 | ) | (966,992 | ) | 223,251 | 23 | % | ||||||||
| Home closing gross profit | 376,980 | 444,739 | (67,759 | ) | (15) | % | |||||||||
| Land closing gross profit | 177 | 650 | (473 | ) | (73) | % | |||||||||
| Total closing gross profit | 377,157 | 445,389 | (68,232 | ) | (15) | % | |||||||||
| Financial Services: | |||||||||||||||
| Revenue | 6,210 | 5,139 | 1,071 | 21 | % | ||||||||||
| Expense | (2,972 | ) | (2,581 | ) | 391 | 15 | % | ||||||||
| (Loss)/earnings from financial services unconsolidated entities and other, net | (5,795 | ) | 1,521 | (7,316 | ) | (481) | % | ||||||||
| Financial services (loss)/profit | (2,557 | ) | 4,079 | (6,636 | ) | (163) | % | ||||||||
| Commissions and other sales costs | (95,798 | ) | (69,383 | ) | 26,415 | 38 | % | ||||||||
| General and administrative expenses | (52,140 | ) | (47,932 | ) | 4,208 | 9 | % | ||||||||
| Interest expense | — | — | — | — | % | ||||||||||
| Other income/(expense), net | 12,862 | (458 | ) | 13,320 | (2,908) | % | |||||||||
| Earnings before income taxes | 239,524 | 331,695 | (92,171 | ) | (28) | % | |||||||||
| Provision for income taxes | (52,688 | ) | (81,611 | ) | (28,923 | ) | (35) | % | |||||||
| Net earnings | $ | 186,836 | $ | 250,084 | $ | (63,248 | ) | (25) | % | ||||||
| Earnings per common share: | |||||||||||||||
| Basic | Change $ or shares | Change % | |||||||||||||
| Earnings per common share | $ | 5.08 | $ | 6.82 | $ | (1.74 | ) | (26) | % | ||||||
| Weighted average shares outstanding | 36,765 | 36,647 | 118 | ||||||||||||
