Meritage Homes(US:MTH)2020-07-24 01:05Financial Data and Key Metrics Changes - The company reported a 78% increase in earnings for Q2 2020 compared to 2019, with home closing revenue growing by 20% [20] - Gross margins improved by 300 basis points, and SG&A leverage improved by 70 basis points [20] - The second quarter diluted EPS was $2.38, benefiting from a share repurchase of one million shares completed in Q1 [22] Business Line Data and Key Metrics Changes - 70% of total orders in Q2 2020 were entry-level homes, a significant increase from 51% in the same quarter last year [11] - The company sold an average of five homes per month in its communities, which is 42% higher than the same quarter last year [16] - Absorption rates in entry-level communities were over 19 homes per community on average, 37% higher than Q2 2019 [16] Market Data and Key Metrics Changes - Orders in the West region increased by 27% year-over-year, with Arizona showing the highest absorptions [18] - California experienced the largest year-over-year growth in orders at 87% for the quarter [18] - The East region saw a 23% increase in orders, with Georgia and the Carolinas posting the strongest gains [19] Company Strategy and Development Direction - The company focuses exclusively on entry-level and first move-up homes, which has proven to be a successful strategy [11] - A robust pipeline for land acquisition is in place, with plans to open 300 communities by the end of 2021, although this may be delayed into early 2022 due to COVID-related shutdowns [13] - The company is investing in virtual capabilities for selling and delivering homes, which is expected to change certain aspects of the industry permanently [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the housing market's strength despite high unemployment and ongoing pandemic challenges [28] - The company anticipates continued strength in the housing market and has updated its guidance for the year, projecting home closings between 10,850 and 11,350 units [26] - Management noted that they are prepared to adjust their strategy quickly if market conditions change [35] Other Important Information - The company ended Q2 with approximately $485 million in cash and the lowest net debt-to-cap leverage in its history at 20.4% [23] - The company spent approximately $214 million on land and development in Q2 2020, almost $40 million higher than the previous year [24] - The company is seeing competitive pressure in the land market, with land prices increasing in hotter markets [74] Q&A Session Summary Question: Guidance for the back half of the year and supply constraints - Management indicated they are ramping up spec inventory and do not foresee significant supply constraints despite some COVID-related issues [31][32] Question: Community count outlook and potential changes - Management stated that they are optimistic about community count growth and have a robust pipeline, with no immediate concerns dampening their enthusiasm for growth [34] Question: Changes in consumer behavior due to COVID - Management reported no signs of retreat in demand, particularly in Arizona, and noted that buyers are well-qualified [37][39] Question: Labor savings and land price appreciation - Management confirmed that temporary labor savings from renegotiated contracts are expected to revert, and land prices are increasing due to competition [72][74]