Meritage Homes(US:MTH)2022-04-28 22:18Financial Data and Key Metrics Changes - Homebuilding revenue grew 15% year-over-year to $1.2 billion in Q1 2022, driven by a 17% increase in average selling prices (ASPs) [45][46] - Home closing gross margin reached a record 30.3%, a 560 basis point improvement from 24.7% a year ago, primarily due to higher ASPs offsetting increased commodity costs [46][50] - Diluted EPS increased by 68% year-over-year to $5.79 [50] Business Line Data and Key Metrics Changes - Entry-level homes comprised 86% of closings, up from 72% in the prior year, reflecting a shift in product mix [26][27] - Total orders for Q1 2022 were 3,874, reflecting a 12% year-over-year increase, driven by a 32% increase in average asset community count [26][28] - Cancellation rate remained stable at 9.6%, similar to the last eight quarters [22] Market Data and Key Metrics Changes - The central region, primarily Texas, saw a 16% increase in order volume, attributed to a 21% increase in average asset communities [28] - The east region experienced a 15% year-over-year order growth, primarily due to a 45% increase in average asset communities [29] - The west region's order volume increased by 5% year-over-year, despite a 19% decline in average order pace [31] Company Strategy and Development Direction - The company focuses on entry-level and first move-up markets, emphasizing affordability and efficient operations [18][67] - A new division was announced for the Salt Lake City market, expanding operations into a region with steady growth [14] - The company plans to maintain a disciplined approach to land acquisition, evaluating opportunities in light of rising interest rates [100][101] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that rising interest rates may impact buyer psychology and affordability but believes underlying demand remains solid [11][62] - The company expects total closings for 2022 to be between 14,500 and 15,500 units, with home closing revenue projected at $6.5 billion to $6.9 billion [63] - Management remains prepared for market fluctuations and is focused on maintaining a healthy land position [67] Other Important Information - The company has initiated a tree planting program in partnership with the Arbor Day Foundation as part of its ESG initiatives [16] - A new general counsel was appointed, bringing extensive legal experience to the company [15] Q&A Session Summary Question: Is the entry-level segment still a good place to be in a rising rate environment? - Management indicated that demand is based on current rates, with buyers adjusting their expectations accordingly [73][76] Question: What is the outlook for gross margins and incentives? - Management expects margins to stabilize and anticipates some incremental incentives to be necessary in the rising interest rate environment [80][81] Question: How is consumer behavior changing in the current market? - There is more handholding required to get buyers comfortable with financing, but demand remains strong [87][89] Question: What is the level of investor activity in core for-sale communities? - The company maintains a tight control on investor activity, limiting it to around 5% of overall community sales [91] Question: What are the economics of the build-for-rent (BFR) platform? - The BFR platform is expected to be net neutral for the company, with some cost savings passed to operator partners [96] Question: What is the strategy regarding land acquisition? - The company plans to adopt a more measured approach to land acquisition, focusing on quality over quantity in light of rising interest rates [100][101]