Meritage Homes Corporation, Scottsdale (NYSE:MTH), on Thursday reported net income of $23.6 million, or $0.56 per share) for the first quarter ended March 31, 2017, a 12% increase from the comparable quarter in 2016. Analysts were expecting a gain of $0.42.
Home building revenue rose 11% from last year’s quarter to $660.6 million as closings were up 6% to 1,581. The average sales price was up 4% to $418,000.
New orders were up 7% to 2,135 and up 11% in value to $892.7 million. The average sales price of new orders rose 3% to $418,000.
Backlog was flat at 3,181 while backlog value rose 2% to $1.37 billion. The average sales price of homes in backlog was $430,000.
Land closing gross profit was $2.5 million, primarily from the sale of one parcel in Southern California.
Home closing gross margin was 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.
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.
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.
“Strong housing market fundamentals in the U.S. have continued to drive demand in our markets,” said Steven J. Hilton, chairman and chief executive officer of Meritage Homes. “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.”
Said Hilton, “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.”
