Meritage Homes(US:MTH)2021-01-28 21:21Financial Data and Key Metrics Changes - In Q4 2020, Meritage Homes achieved home closing revenue of $1.4 billion, a 28% increase year-over-year, driven by a 32% increase in home closings [16][28][35] - The home closing gross margin improved by 420 basis points to 24% from 19.8% in the prior year, marking the best quarterly margin since 2006 [17][28] - The diluted EPS for Q4 2020 was $3.97, reflecting a 50% increase year-over-year compared to $2.65 in Q4 2019 [35] Business Line Data and Key Metrics Changes - The company sold 3,174 homes in Q4 2020, which was 52% higher than the same quarter in 2019 [16] - Entry-level homes comprised almost 70% of total orders for the quarter, up from 55% in Q4 2019 [19] - The absorption rate increased to 5.3 homes per month in Q4 2020, an 87% year-over-year increase [18] Market Data and Key Metrics Changes - The East Region led order growth with a 76% improvement over Q4 2019, while the Central Region saw a 46% increase [20][21] - The West Region experienced a 34% increase in orders, driven by a 65% increase in absorptions [22] - Overall, the housing market remained robust due to low interest rates and limited supply, with a shift in buyer preferences towards single-family homes [20] Company Strategy and Development Direction - The company focuses on entry-level and first move-up markets, aiming to offer affordable yet high-quality homes [15] - Meritage Homes plans to achieve 300 active communities by mid-2022, with a strong emphasis on land acquisition and development [38][41] - The company intends to sustain and replenish its community growth beyond 2022, with anticipated annual spending of over $1.5 billion on land and development [38][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued strength of the housing market, driven by favorable macroeconomic factors and demographic trends [14][41] - The company is closely monitoring affordability as a key concern, given rising land prices and construction costs [57] - Management expects to maintain strong margins in 2021 despite higher commodity costs [32] Other Important Information - Meritage Homes donated over $0.5 million to non-profits focused on COVID-19 relief and racial equity initiatives [12][13] - The company achieved a net debt-to-capital ratio of 10.5%, reflecting a strong balance sheet [37] Q&A Session Summary Question: Insights on land prices and inflation - Management noted that land prices were flat in 2020 but began to rise modestly in Q4 as demand for housing strengthened [49] Question: Concerns about competition from single-family rentals - Management believes that homeownership remains appealing and does not see significant competition from rental projects in their target markets [54] Question: Confidence in achieving 300 communities by mid-2022 - Management expressed strong confidence in reaching the 300 community goal, supported by land acquisitions and community development plans [60][61] Question: Labor procurement concerns - Management indicated that labor availability is not a major concern, but municipal approvals could pose challenges [64] Question: Pricing strategies and absorption control - Management emphasized the importance of maintaining both pricing power and sales pace, successfully balancing the two [78]