Meritage Homes(US:MTH)2021-05-01 10:38Financial Data and Key Metrics Changes - The company reported a 25% year-over-year increase in home closings, totaling 2,890 homes, with home closing revenue reaching $1.1 billion, a 21% increase compared to 2020 [26][40] - The home closing gross margin improved to 24.7%, up 470 basis points from 20% in the prior year [26][40] - Diluted EPS increased by 88% year-over-year to $3.44 [44] Business Line Data and Key Metrics Changes - Entry-level homes comprised over 76% of total orders for the quarter, up from 61% in the first quarter last year [27] - The absorption pace for entry-level homes was 5.8 per month, up from 4.3 per month in the prior year, marking the strongest first quarter absorption pace since 2005 [11][26] - The first move-up communities also saw a 45% increase in absorption year-over-year [27] Market Data and Key Metrics Changes - The East region led in absorption growth with a 67% improvement year-over-year, while orders in the East region increased by 39% [28] - Tennessee had the highest absorption pace at 6.6 per month, reflecting a recovery from previous storms [29] - The West region experienced a 13% increase in absorption despite a 6% decrease in orders [30] Company Strategy and Development Direction - The company aims to continue gaining market share by focusing on affordable entry-level and first move-up markets [23] - Meritage Homes is committed to building energy-efficient homes and has been recognized as the 2021 ENERGY STAR Partner of the Year for Sustained Excellence [15] - The company plans to enter new markets, specifically expanding operations into Charleston and Myrtle Beach, South Carolina, with new affordable entry-level communities set to open in 2022 [19][20] Management's Comments on Operating Environment and Future Outlook - Management believes the current housing market demand will persist throughout the year, supported by favorable mortgage rates and strong demographic trends [12][14] - The company anticipates continued pricing power to offset commodity cost increases, projecting total closings for 2021 to be between 11,700 and 12,700 units [55] - Management expressed confidence in sustaining strong margins despite rising commodity costs, with expectations for an effective tax rate of about 23% [44][55] Other Important Information - The company ended the quarter with over 2,200 spec homes in inventory, with a backlog of 5,240 units, reflecting a 47% increase year-over-year [33] - Meritage Homes plans to spend over $1.5 billion annually on land acquisition and development to support its growth strategy [51] - The company has a strong balance sheet, with a cash balance of $716 million and a net debt-to-cap ratio of 10.9% [47] Q&A Session Summary Question: What is the current start pace running at? - The start pace is running almost the same as the sales pace, with limitations due to production issues, but the company is comfortable with its current pace [64] Question: How realistic is it that margins can be sustained as new communities open? - Management believes they can sustain margins through 2021, as new communities were acquired at favorable prices [67] Question: How many markets are selling above FHA limits? - The company is pushing above FHA limits in hot markets like Phoenix and California, but is generally focused on staying below those limits [70] Question: What is the impact of resin shortages in Texas? - There was a temporary disruption due to weather, but regular production times have resumed [75] Question: How are pricing moves being managed in the current market? - The company uses a robust community-by-community pricing strategy to remain competitive and manage pricing effectively [82] Question: What percentage of buyers are utilizing FHA loans? - Less than 25% of buyers are using FHA loans, indicating a strong capital position among buyers [71] Question: How does the company manage costs in a highly inflationary environment? - The company has streamlined its product offerings to manage costs effectively, allowing for better sourcing and vendor relationships [108]