Meritage Homes Corporation (NYSE: MTH) reported Q1 EPS of $0.65, $0.01 better than the analyst estimate of $0.64. Revenue for the quarter came in at $698.65 million versus the consensus estimate of $636.1 million.

“Home buying activity improved throughout the first quarter of 2019, led by affordable entry-level and move-up homes, as buyers responded positively to lower interest rates and targeted incentives," said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “We believe the demand we’ve seen so far in the spring selling season reflects sustained positive macroeconomic factors for the housing industry.

“Meritage continues to benefit from our strategic focus on the entry-level and first move-up markets, which together represented nearly 90% of our first quarter 2019 orders, driven by growing demand for more affordable homes to meet the needs of Millennials and Baby Boomers. Our first quarter orders increased 7% year-over-year and matched our first quarter 2018 six-year high absorptions pace of 9.5 orders per average community.

“We also closed more homes in the first quarter of 2019 than we did last year, despite entering the year with 15% fewer homes in backlog than we had at the beginning of 2018,” Mr. Hilton added. “We achieved those results primarily due to our strategic decision to have more spec homes ready to sell and close quickly to meet the demands of home buyers. More than two-thirds of our first quarter 2019 closings were from previously started spec homes, up from a little more than half of our closings from spec homes in the first quarter of 2018. Most of those came from our entry-level LiVE.NOW.® communities, but they also included move-up homes in inventory that we marketed with targeted incentives, especially in slower-selling communities that we are looking to close out quickly."

He continued, “As expected, our average sales price (ASP) continued to come down as our product mix shifts further toward entry-level and affordable first move-up homes. That reduction in ASP, combined with the incentives that helped drive our order growth during the quarter, resulted in reduced home closing revenue and gross margin compared to the first quarter of 2018. However, we expect our higher backlog conversion and simplified product offerings will help us gain leverage and drive further profitability as we move through the year.”

Mr. Hilton concluded, “We are encouraged by the outlook for interest rate stability and optimistic that the spring selling season will continue as it has begun in 2019, but remain cautious in projecting quarterly results due to choppiness in the market. We are currently projecting 2019 home closings and total home closing revenue of approximately 8,200-8,700 and $3.25-3.45 billion, respectively, for the full year. We are anticipating home closing gross margin to be around 18% for the year, which we estimate will translate to approximately $4.65-4.95 diluted earnings per share.”

GUIDANCE:

Meritage Homes Corporation sees FY2019 EPS of $4.65-$4.95, versus the consensus of $4.69. Meritage Homes Corporation sees FY2019 revenue of $3.25-3.45 billion, versus the consensus of $3.31 billion.

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