Meritage Homes reports first quarter 2017 diluted EPS of $0.56, increased community count and solid order growth

SCOTTSDALE, Ariz., April 27, 2017 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH), a leading U.S. homebuilder, reported its first quarter results for the period ended March 31, 2017.

MANAGEMENT COMMENTS

“We delivered solid earnings, revenue and order growth for the first quarter of 2017, and are on track to achieve our projections for the year,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “We closed more homes in the first quarter than we did a year ago, which resulted in an 11% increase in home closing revenue, despite beginning the year with slightly fewer orders in backlog than we had entering 2016. We leveraged that revenue growth by managing overhead expenses to deliver a 27% year-over-year increase in our earnings before taxes."

Mr. Hilton added, "I am pleased with our performance in the first quarter and the progress we are making on the strategic initiatives we have outlined, which are designed to position the company for further growth and earnings expansion. We grew our ending community count by 5% while also increasing our sales pace to generate 7% order growth over last year's first quarter. In addition, we secured approximately 3,600 new lots for future growth, ending the quarter with approximately 31,300 total lots -- the most we’ve had since mid-2007. We also completed our new product library for the East region and began rolling out those plans in our new communities. We believe customers will find them very attractive and are expecting to generate better margins with them as well.

“Strong housing market fundamentals in the U.S. have continued to drive demand in our markets,” added Mr. Hilton. “We have been addressing the increasing demand from entry-level and first-time home buyers by securing more lots and opening communities with affordable homes designed for those buyers, including our LiVE.NOW.™ homes, which are available in a growing number of Meritage communities across the country.

“With a successful first quarter behind us and a positive outlook for continued strong demand through the spring selling season, we remain confident in our projections for 2017, including deliveries of approximately 7,500-7,900 homes and estimated total closing revenue of $3.1-3.3 billion for the year. Though mindful of labor and materials cost pressures, we believe we can maintain gross margins consistent with 2016 while generating a 6-12% increase in pre-tax earnings through a combination of cost management and additional operating leverage with our anticipated revenue growth.”

FIRST QUARTER RESULTS

• Net earnings of $23.6 million ($0.56 per diluted share) for the first quarter of 2017, compared to prior year net earnings of $21.0 million ($0.50 per diluted share), primarily reflect higher closing revenue and greater overhead leverage, partially offset by lower home closing gross margin and a higher effective tax rate. Earnings before income taxes increased 27% year-over-year.
  
  
• First quarter effective tax rate was 36% in 2017, compared to 27% in 2016. The lower rate in 2016 reflected the significant impact of energy tax credits captured on energy-efficient homes closed in 2016 and prior periods, which Congress has not yet extended for 2017, resulting in a higher assumed effective tax rate this year.
  
  
• Home closing revenue increased 11% on a 6% increase in home closings coupled with a 4% increase in average closing price over the first quarter of 2016. All regions delivered year-over-year increases in home closing revenue, led by 15% growth in the West region (California, Colorado and Arizona), followed by 9% in the Central region (Texas) and 6% in the East region (Florida, Georgia, the Carolinas and Tennessee).
  
  
• Land closing gross profit of $2.5 million, primarily from the sale of one parcel in southern California, also contributed to the year-over-year increase in first quarter net earnings.
  
  
• Home closing gross margin was in line with management's expectations at 16.2% for the first quarter of 2017, compared to 17.4% in the first quarter of 2016. The lower margin reflects increases in land and construction costs, approximately $2.0 million of asset impairments and write-offs, as well as front-end loaded costs associated with opening new communities that are expected to begin generating revenue in the latter half of 2017.
  
  
• Selling, general and administrative expenses were 11.8% of home closing revenue, an improvement of 90 bps from 12.7% in the first quarter of 2016, reflecting successful cost controls and greater leverage of expenses on higher closing volumes and revenue.
  
  
• Total orders for the first quarter increased 7% year-over-year, primarily due to an 8% increase in absorption pace (orders per average number of active communities) of 8.6 in 2017 compared to 8.0 in 2016. Strong order growth of 25% and 17% respectively in the West and Central regions offset a 19% decline in the East region.  The decline in the East region reflected fewer average actively selling communities in the first quarter of 2017 than the previous year, as well as the opening of communities late in the quarter, which only minimally contributed to first quarter 2017 orders.
  
  
• A total of 26 new communities were opened during the quarter, approximately half of which opened and recorded their first sale in the final weeks of the quarter. Total active community count increased 5% to 256 at March 31, 2017, from 243 at March 31, 2016.
  
  
• In addition to the 7% increase in orders, a 3% increase in average sales price (ASP) drove an 11% increase in the total value of orders. The increase in order value was led by robust growth in Arizona (+48%), California (+28%) and Texas (+17%), markets where Meritage has opened a large number of communities designed for entry-level and first-time buyers, which have been selling at a higher pace than traditional move-up communities. As a result of the beginning of a shift in those markets to entry level product, ASPs for the first quarter of 2017 were 5% lower in Arizona and 1% lower in Texas, compared to the first quarter of 2016.

BALANCE SHEET

• Cash and cash equivalents at March 31, 2017, totaled $85.7 million, compared to $131.7 million at December 31, 2016, primarily reflecting $207 million in land and development spending to meet growing demand and position the company for future growth.
  
  
• Real estate assets increased by $90.8 million during the first quarter, ending at $2.51 billion at March 31, 2017, compared to $2.42 billion at December 31, 2016. Approximately $73 million of the increase was for homes under construction or completed, with finished home sites or land under development accounting for most of the remainder of the increase.
  
  
• Meritage ended the first quarter of 2017 with approximately 31,300 total lots owned or under control, compared to approximately 28,400 total lots at March 31, 2016. Approximately two-thirds of the 3,600 newly controlled lots added during the first quarter were in communities planned for entry-level or first-time buyers.
  
  
• Net debt-to-capital ratio at March 31, 2017 was 42.8%, compared to 41.2% at December 31, 2016, reflecting 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 today to discuss the Company's results at 10:00 a.m. Eastern Time (7:00 a.m. in Arizona). The call will be webcast with an accompanying slideshow available on the "Investor Relations" page of the Company's web site 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/10104520.

Telephone participants who are unable to pre-register may dial in to 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 until May 11, 2017, beginning at approximately 12:00 p.m. ET on April 27 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 10104520.

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 entry-level, 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 and Fort Collins, 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 31-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.

This press release and the accompanying comments during our analyst call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include management's expectations with respect to future growth and earnings expansion, our strategy and projections with respect to the entry-level and first-time home buyer market, as well as our new East region product library, plans for community count growth in 2017, projected home closings and home closing revenue, home closing gross margins and pre-tax earnings for the full year 2017.

Such statements are based upon 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: the availability and cost of finished lots and undeveloped land; changes in interest rates and the availability and pricing of residential mortgages; fluctuations in the availability and cost of labor; changes in tax laws that adversely impact us or our homebuyers; changes in economic conditions; 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;  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 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

Released April 27, 2017