SCOTTSDALE, Ariz., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Meritage Homes Corporation (NYSE: MTH), a leading U.S. homebuilder, reported its third quarter results for the period ended September 30, 2018.

Summary Operating Results (unaudited)(Dollars in thousands, except per share amounts)
		Three Months Ended September 30,											Nine Months Ended September 30,
		2018				2017				% Chg			2018				2017				% Chg
Homes closed (units)		2,162				1,969				10	%		6,026				5,456				10	%
Home closing revenue		$	877,734			$	805,008			9	%		$	2,478,649			$	2,263,405			10	%
Average sales price - closings		$	406			$	409			(1	)%		$	411			$	415			(1	)%
Home orders (units)		1,828				1,874				(2	)%		6,436				6,162				4	%
Home order value		$	715,089			$	765,027			(7	)%		$	2,595,881			$	2,536,448			2	%
Average sales price - orders		$	391			$	408			(4	)%		$	403			$	412			(2	)%
Ending backlog (units)													3,285				3,333				(1	)%
Ending backlog value													$	1,367,006			$	1,408,801			(3	)%
Average sales price - backlog													$	416			$	423			(2	)%
Earnings before income taxes		$	71,409			$	63,455			13	%		$	191,478			$	163,429			17	%
Net earnings		$	54,135			$	42,550			27	%		$	151,847			$	107,702			41	%
Diluted EPS		$	1.33			$	1.02			30	%		$	3.69			$	2.55			45	%

MANAGEMENT COMMENTS

“We delivered another quarter of strong earnings performance with a 13% increase in pre-tax earnings, largely due to the success of our shift into the entry-level market over the past couple of years,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “That performance resulted from a 10% increase in our third quarter home closings -- the second highest number of homes we’ve delivered in more than a decade -- and our ability to hold margins through increased efficiencies that helped offset higher costs.

“The combination of higher home prices and interest rates have clearly impacted recent home buying activity, especially at higher price points, which we anticipated two years ago when we undertook our strategy to build more affordable homes to cater to the expanding entry-level and move-down markets,” explained Mr. Hilton. “We’ve made tremendous progress in shifting toward more affordably-priced homes, which represented one-third of our communities and 43% of our total orders in the third quarter. The fact that these communities are selling at a faster pace than higher-end move-up communities reinforces our confidence and commitment to furthering that strategy.”

He continued, “Underlying economic and housing market fundamentals remain strong. Employment is high, wages are growing, consumer confidence is high and inventories of affordable homes are low. These conditions offer opportunities for Meritage and the entry-level LiVE.NOW.® communities we have in our pipeline.

"We expect continued demand for entry-level homes will exceed that for move-up homes over the long term, though the next couple of quarters may be more challenging, and we have therefore adjusted our expectations for the remainder of 2018 based on the recent softness we’ve seen in the overall market,” said Mr. Hilton. “We are now projecting approximately 8,300-8,500 home closings and total home closing revenue of $3.375-3.475 billion for the full year 2018. We also expect home closing gross margin for the full year to be approximately 18% and are projecting pre-tax earnings of $265-285 million for the year."

Mr. Hilton added, “We announced an authorization by our board last quarter to repurchase up to $100 million of Meritage Homes stock. We have purchased more than $29 million from cash on hand so far and we expect to complete additional repurchases over the coming quarters.”

THIRD QUARTER RESULTS

• Net earnings of $54.1 million ($1.33 per diluted share) for the third quarter of 2018, increased 27% and 30%, respectively, compared to $42.6 million ($1.02 per diluted share) for the third quarter of 2017. Earnings before income taxes were up 13% year-over-year, primarily due to increased home closing revenue.
• Home closing revenue increased 9% with a 10% increase in closing volume, partially offset by a 1% decrease in average sales price compared to the third quarter of 2017, as demand continued to shift to entry-level homes. The increases in closings and revenue were led by the East region, which delivered a 31% increase in home closing revenue with 32% more home closings at an average sales price 1% lower than the third quarter of 2017. The Central region delivered home closings and revenue growth of 11% and 8%, respectively, with a 3% decrease in average price. West region home closing revenue was 2% less than last year’s third quarter, as a 5% decline in closing volume was partially offset by a 3% increase in average closing prices for the region.
• Home closing gross margin for the third quarter of 2018 was 18.1%, or 18.4% excluding a $2.6 million charge to terminate a purchase agreement for land in California that is no longer consistent with the Company’s strategy. That compared to 18.1% in the third quarter of 2017, or 18.3% excluding $1.8 million of charges incurred for asset write-offs.
• Selling, general and administrative expenses totaled 11.0% of third quarter 2018 home closing revenue, in line with 10.9% in the prior year.
• Interest expense declined $1.1 million for the third quarter of 2018 compared to 2017. The reduction was due to a greater percentage of interest capitalized to qualified assets under development.
• Third quarter effective tax rate was approximately 24% in 2018, compared to 33% in 2017, reflecting lower corporate income tax rates enacted for 2018.
• Total orders for the third quarter of 2018 were 2% below 2017’s third quarter, primarily reflecting a 42% decrease in average active communities in California, which have produced among the highest absorptions over the past year. Though average active community count company-wide for the third quarter was 2% higher in 2018 than 2017, this included several communities near close-out with limited inventory, which contributed to a 4% decline in total orders pace year-over-year.

YEAR TO DATE RESULTS

• Net earnings were $151.8 million for the first nine months of 2018, a 41% increase over $107.7 million for the first nine months of 2017, primarily driven by a 10% increase in home closing revenue, combined with a 40 basis point improvement in home closing gross margin and a lower effective tax rate for the first nine months of 2018 compared to 2017.
• Home closings for the first nine months of the year increased 10% over 2017, driven by a 32% increase in the East region and 14% increase in the Central region.
• Home closing gross profit increased 12% to $442.4 million in the first nine months of 2018 compared to $393.8 million in the first nine months of 2017, as year-to-date home closing gross margin improved to 17.8% in 2018 from 17.4% in 2017, or 18.0% compared to 17.6%, excluding $2.7 million and $3.6 million of charges incurred on asset write-offs in both years, respectively. East region home closing gross margins were the primary contributor, as they improved 210 basis points year-over-year for the first nine months of the year, or 120 basis points excluding the asset write-offs in the prior year.
• Other income for the first nine months of the year increased by $4.0 million in 2018 primarily due to a $4.8 million favorable legal settlement in the first quarter of 2018 related to a previous joint venture in Nevada.
• The effective tax rate for the first nine months of 2018 was 21%, compared to 34% for the first nine months of 2017, due to the lower statutory corporate tax rate in 2018, as well as $6.3 million of energy tax credits recorded in the first quarter of 2018 for homes closed in 2017 that qualified for the credits. These energy tax credits were extended only for 2017 and are expected to reduce the full year 2018 effective tax rate by at least 200 basis points.

BALANCE SHEET

• Cash and cash equivalents at September 30, 2018, totaled $205.8 million, compared to $170.7 million at December 31, 2017. Real estate assets increased to $2.89 billion at September 30, 2018, compared to $2.73 billion at December 31, 2017. Homes under construction or completed increased by $224.6 million, reflecting a higher level of spec inventory for entry-level communities, while finished home sites and land under development decreased by $63.0 million.
• The Company repurchased and retired approximately $29.4 million of its outstanding stock during the third quarter of 2018 under the Company's authorized $100 million share repurchase program.
• Meritage ended the third quarter of 2018 with approximately 34,400 total lots owned or under control, compared to approximately 33,300 total lots at September 30, 2017. Approximately 80% of the lots added during the third quarter were in communities planned for entry-level product.
• Debt-to-capital ratio was reduced to 43.4% at September 30, 2018 from 44.9% at December 31, 2017, with net debt-to-capital ratio reduced further to 39.2% and 41.4%, respectively.

CONFERENCE CALL

Management will host a conference call to discuss the results at 8:00 a.m. Arizona Time (11:00 a.m. Eastern Time) on Thursday, October 25.

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/10124467.

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 beginning at approximately 1:00 p.m. ET on October 26 and extending through November 9, 2018, 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 10124467.

Meritage Homes Corporation and SubsidiariesConsolidated Income Statements(In thousands, except per share data)(Unaudited)
	Three Months EndedSeptember 30,								Nine Months EndedSeptember 30,
	2018				2017				2018				2017
Homebuilding:
Home closing revenue	$	877,734			$	805,008			$	2,478,649			$	2,263,405
Land closing revenue	6,847				589				25,991				16,942
Total closing revenue	884,581				805,597				2,504,640				2,280,347
Cost of home closings	(719,142		)		(659,350		)		(2,036,212		)		(1,869,569		)
Cost of land closings	(6,922		)		(1,646		)		(27,963		)		(15,504		)
Total cost of closings	(726,064		)		(660,996		)		(2,064,175		)		(1,885,073		)
Home closing gross profit	158,592				145,658				442,437				393,836
Land closing gross (loss)/profit	(75		)		(1,057		)		(1,972		)		1,438
Total closing gross profit	158,517				144,601				440,465				395,274
Financial Services:
Revenue	3,832				3,549				10,750				10,142
Expense	(1,659		)		(1,524		)		(4,836		)		(4,454		)
Earnings from financial services unconsolidated entities and other, net	4,148				3,489				10,278				9,673
Financial services profit	6,321				5,514				16,192				15,361
Commissions and other sales costs	(60,282		)		(55,845		)		(173,857		)		(158,866		)
General and administrative expenses	(35,906		)		(31,636		)		(101,004		)		(90,849		)
Earnings/(loss) from other unconsolidated entities, net	894				(91		)		692				852
Interest expense	(53		)		(1,116		)		(233		)		(3,561		)
Other income, net	1,918				2,028				9,223				5,218
Earnings before income taxes	71,409				63,455				191,478				163,429
Provision for income taxes	(17,274		)		(20,905		)		(39,631		)		(55,727		)
Net earnings	$	54,135			$	42,550			$	151,847			$	107,702
Earnings per share:
Basic
Earnings per share	$	1.34			$	1.06			$	3.75			$	2.67
Weighted average shares outstanding	40,283				40,323				40,472				40,273
Diluted
Earnings per share	$	1.33			$	1.02			$	3.69			$	2.55
Weighted average shares outstanding	40,855				42,011				41,100				42,585

Meritage Homes Corporation and Subsidiaries Consolidated Balance Sheets(In thousands)(Unaudited)
		September 30, 2018				December 31, 2017
Assets:
Cash and cash equivalents		$	205,762			$	170,746
Other receivables		79,573				79,317
Real estate (1)		2,887,293				2,731,380
Real estate not owned		36,562				38,864
Deposits on real estate under option or contract		49,893				59,945
Investments in unconsolidated entities		16,294				17,068
Property and equipment, net		53,371				33,631
Deferred tax asset		36,674				35,162
Prepaids, other assets and goodwill		82,837				85,145
Total assets		$	3,448,259			$	3,251,258
Liabilities:
Accounts payable		$	156,772			$	140,516
Accrued liabilities		200,445				181,076
Home sale deposits		34,159				34,059
Liabilities related to real estate not owned		32,676				34,978
Loans payable and other borrowings		16,669				17,354
Senior notes, net		1,295,054				1,266,450
Total liabilities		1,735,775				1,674,433
Stockholders' Equity:
Preferred stock		—				—
Common stock		400				403
Additional paid-in capital		568,976				584,578
Retained earnings		1,143,108				991,844
Total stockholders’ equity		1,712,484				1,576,825
Total liabilities and stockholders’ equity		$	3,448,259			$	3,251,258
(1) Real estate – Allocated costs:
Homes under contract under construction		$	660,944			$	566,474
Unsold homes, completed and under construction		646,709				516,577
Model homes		136,291				142,026
Finished home sites and home sites under development		1,443,349				1,506,303
Total real estate		$	2,887,293			$	2,731,380

Supplemental Information and Non-GAAP Financial Disclosures (Dollars in thousands – unaudited):
	Three Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2018				2017
Depreciation and amortization	$	6,850			$	4,199			$	19,458			$	12,071
Summary of Capitalized Interest:
Capitalized interest, beginning of period	$	84,443			$	72,327			$	78,564			$	68,196
Interest incurred	21,545				21,024				63,788				58,199
Interest expensed	(53		)		(1,116		)		(233		)		(3,561		)
Interest amortized to cost of home and land closings	(17,871		)		(15,462		)		(54,055		)		(46,061		)
Capitalized interest, end of period	$	88,064			$	76,773			$	88,064			$	76,773
	September 30,2018				December 31,2017
Notes payable and other borrowings	$	1,311,723			$	1,283,804
Stockholders' equity	1,712,484				1,576,825
Total capital	3,024,207				2,860,629
Debt-to-capital	43.4		%		44.9		%
Notes payable and other borrowings	$	1,311,723			$	1,283,804
Less: cash and cash equivalents	$	(205,762	)		$	(170,746	)
Net debt	1,105,961				1,113,058
Stockholders’ equity	1,712,484				1,576,825
Total net capital	$	2,818,445			$	2,689,883
Net debt-to-capital	39.2		%		41.4		%

Meritage Homes Corporation and SubsidiariesConsolidated Statements of Cash Flows(In thousands)(Unaudited)
		Nine Months Ended September 30,
		2018				2017
Cash flows from operating activities:
Net earnings		$	151,847			$	107,702
Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:
Depreciation and amortization		19,458				12,071
Stock-based compensation		13,737				9,898
Equity in earnings from unconsolidated entities		(11,160		)		(10,525		)
Distribution of earnings from unconsolidated entities		11,898				10,410
Other		2,197				1,265
Changes in assets and liabilities:
Increase in real estate		(161,816		)		(336,069		)
Decrease in deposits on real estate under option or contract		10,080				13,633
Decrease/(increase) in other receivables, prepaids and other assets		1,686				(15,207		)
Increase in accounts payable and accrued liabilities		35,625				21,298
Increase in home sale deposits		100				11,098
Net cash provided by/(used in) operating activities		73,652				(174,426		)
Cash flows from investing activities:
Investments in unconsolidated entities		(551		)		(404		)
Distributions of capital from unconsolidated entities		597				1,250
Purchases of property and equipment		(23,754		)		(12,038		)
Proceeds from sales of property and equipment		107				251
Maturities/sales of investments and securities		1,065				1,297
Payments to purchase investments and securities		(1,065		)		(1,297		)
Net cash used in investing activities		(23,601		)		(10,941		)
Cash flows from financing activities:
Proceeds from Credit Facility, net		—				10,000
Repayment of loans payable and other borrowings		(13,484		)		(10,491		)
Repayment of senior notes and senior convertible notes		(175,000		)		(126,691		)
Proceeds from issuance of senior notes		206,000				300,000
Payment of debt issuance costs		(3,198		)		(3,986		)
Repurchase of shares		(29,353		)		—
Net cash (used in)/provided by financing activities		(15,035		)		168,832
Net increase/(decrease)in cash and cash equivalents		35,016				(16,535		)
Beginning cash and cash equivalents		170,746				131,702
Ending cash and cash equivalents		$	205,762			$	115,167

Meritage Homes Corporation and SubsidiariesOperating Data(Dollars in thousands)(Unaudited)
		Three Months Ended September 30,
		2018							2017
		Homes			Value				Homes			Value
Homes Closed:
Arizona		411			$	134,977			424			$	141,249
California		206			143,386				261			154,731
Colorado		160			87,716				135			77,728
West Region		777			366,079				820			373,708
Texas		721			256,308				647			236,759
Central Region		721			256,308				647			236,759
Florida		249			105,902				185			77,652
Georgia		139			47,429				95			29,019
North Carolina		165			63,381				107			48,129
South Carolina		69			23,605				74			25,164
Tennessee		42			15,030				41			14,577
East Region		664			255,347				502			194,541
Total		2,162			$	877,734			1,969			$	805,008
Homes Ordered:
Arizona		347			$	112,185			348			$	116,757
California		104			67,810				200			124,339
Colorado		157			84,078				92			55,459
West Region		608			264,073				640			296,555
Texas		635			228,627				593			213,241
Central Region		635			228,627				593			213,241
Florida		231			94,089				269			120,243
Georgia		89			32,459				102			33,039
North Carolina		139			52,434				147			59,976
South Carolina		65			21,448				86			28,449
Tennessee		61			21,959				37			13,524
East Region		585			222,389				641			255,231
Total		1,828			$	715,089			1,874			$	765,027

		Nine Months Ended September 30,
		2018							2017
		Homes			Value				Homes			Value
Homes Closed:
Arizona		1,052			$	344,245			1,139			$	382,814
California		643			444,796				702			427,095
Colorado		416			231,523				417			233,377
West Region		2,111			1,020,564				2,258			1,043,286
Texas		2,004			707,397				1,752			637,147
Central Region		2,004			707,397				1,752			637,147
Florida		761			329,156				518			225,674
Georgia		316			107,237				223			74,860
North Carolina		488			191,129				370			164,596
South Carolina		211			72,611				217			75,085
Tennessee		135			50,555				118			42,757
East Region		1,911			750,688				1,446			582,972
Total		6,026			$	2,478,649			5,456			$	2,263,405
Homes Ordered:
Arizona		1,222			$	401,063			1,148			$	380,459
California		513			359,907				802			480,694
Colorado		498			270,991				368			214,532
West Region		2,233			1,031,961				2,318			1,075,685
Texas		2,210			785,686				2,000			719,656
Central Region		2,210			785,686				2,000			719,656
Florida		814			343,293				791			342,754
Georgia		346			125,293				270			88,306
North Carolina		439			168,623				440			187,683
South Carolina		233			80,774				224			76,827
Tennessee		161			60,251				119			45,537
East Region		1,993			778,234				1,844			741,107
Total		6,436			$	2,595,881			6,162			$	2,536,448
Order Backlog:
Arizona		496			$	176,843			453			$	158,988
California		188			138,274				331			207,237
Colorado		281			154,451				224			135,239
West Region		965			469,568				1,008			501,464
Texas		1,226			461,628				1,179			437,243
Central Region		1,226			461,628				1,179			437,243
Florida		499			211,063				526			233,534
Georgia		181			68,605				138			46,809
North Carolina		194			74,405				263			110,339
South Carolina		121			43,678				123			42,378
Tennessee		99			38,059				96			37,034
East Region		1,094			435,810				1,146			470,094
Total		3,285			$	1,367,006			3,333			$	1,408,801

Meritage Homes Corporation and SubsidiariesOperating Data(Unaudited)
		Three Months Ended September 30,
		2018																	2017
		Ending													Average				Ending							Average
Active Communities:
Arizona		44													42.0				40							39.5
California		14													14.5				24							25.0
Colorado		20													19.5				9							9.5
West Region		78													76.0				73							74.0
Texas		92													91.0				93							92.5
Central Region		92													91.0				93							92.5
Florida		30													30.0				29							29.5
Georgia		22													21.0				17							18.0
North Carolina		20													20.0				18							19.0
South Carolina		12													11.5				14							14.0
Tennessee		10													9.0				6							6.5
East Region		94													91.5				84							87.0
Total		264													258.5				250							253.5

		Nine Months Ended September 30,
		2018																	2017
		Ending													Average				Ending							Average
Active Communities:
Arizona		44													41.0				40							41.0
California		14													17.0				24							26.0
Colorado		20													15.5				9							9.5
West Region		78													73.5				73							76.5
Texas		92													92.0				93							86.5
Central Region		92													92.0				93							86.5
Florida		30													29.0				29							28.0
Georgia		22													20.5				17							17.0
North Carolina		20													18.5				18							17.5
South Carolina		12													12.5				14							14.5
Tennessee		10													8.0				6							6.5
East Region		94													88.5				84							83.5
Total		264													254.0				250							246.5

About Meritage Homes CorporationMeritage Homes is the seventh-largest public homebuilder in the United States, based on homes closed in 2017. Meritage builds and sells single-family homes for entry-level, move-up, and active adult buyers in markets including California, Texas, Arizona, Colorado, Florida, North Carolina, South Carolina, Tennessee and Georgia.

The Company has designed and built over 110,000 homes in its 32-year history, and has a reputation for its distinctive style, quality construction, and positive customer experience. Meritage 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, home closing gross margin and pre-tax earnings for the full year 2018, as well as management's expectation for entry-level demand and its intention to repurchase additional shares.

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, except as required by law. 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; shortages in the availability and cost of labor; changes in interest rates and the availability and pricing of residential mortgages; changes in tax laws that adversely impact us or our homebuyers; inflation in the cost of materials used to develop communities and construct homes; the success of strategic initiatives; the ability of our potential buyers to sell their existing homes; cancellation rates; the adverse effect of slow absorption rates; slowing in the growth of entry-level home buyers; competition; 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; home warranty and construction defect claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance and surety bonds in connection with our development work; the loss of key personnel; 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 if our credit ratings are downgraded; 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; negative publicity that affects our reputation; legislation related to tariffs 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, 2017 and Form 10-Q for the second quarter ended June 30, 2018 under the caption "Risk Factors," which can be found on our website at www.investors.meritagehomes.com.

Contacts:	Brent Anderson, VP Investor Relations
	(972) 580-6360 (office)
	[email protected]

Source: Meritage Homes Corporation

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Meritage Homes Corporation (MTH) Misses Q3 EPS by 3c, Revenues MissOctober 24, 2018 4:36 PM