Meritage Homes(MTH) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2024, Meritage Homes delivered 4,044 homes, achieving a home closing gross margin of 23.2% and a diluted EPS of $4.72, marking a 12% year-over-year decrease in diluted EPS from$ 5.38 in Q4 2023 [10][47] - The full-year 2024 home closing revenue reached $6.3 billion, a 5% increase from 2023, with a closing gross margin of 24.9%, slightly up from 24.8% in 2023 [11][48] - The company reported a book value per share of$ 143.98, reflecting a 21% compounded annual growth rate over three years [12] Business Line Data and Key Metrics Changes - Sales orders for Q4 2024 totaled 3,304 homes, with 91% from entry-level homes, up from 88% the previous year, and a cancellation rate of 10% [23] - The average sales price (ASP) for orders was $400,000, down 4% year-over-year due to increased financing incentives and a shift in product and geographic mix [24] - The ending community count increased to 292, a 5% rise from Q3 2024 and an 8% increase from Q4 2023 [25] Market Data and Key Metrics Changes - The average absorption pace improved across all regions, with the central region (Texas) showing the highest at 4.7% per month [27] - The East region had an average absorption pace of 3.8%, while the West region experienced a 10% year-over-year growth in absorption pace to 3.3% [29] - The company anticipates a double-digit year-over-year increase in community count by the end of 2025, driven by favorable demographics and undersupply of homes [30] Company Strategy and Development Direction - Meritage Homes is focused on increasing market share by delivering affordable, move-in ready homes, with a goal of 20,000 units by 2027 [26][60] - The company has expanded its operations into new markets, including Alabama, and is committed to maintaining a strong land position to support growth [19][58] - The company plans to utilize off-balance sheet land financing to enhance capital efficiency, particularly in California [118][126] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the spring selling season, despite a slower start in January, and believes they can achieve their full-year closing guidance [70] - The company is prepared to adjust incentives based on market conditions, with a focus on maintaining margins while achieving volume targets [78][80] - Management remains confident in the long-term growth trajectory, citing strong demand for affordable homes despite current economic challenges [60][134] Other Important Information - Meritage Homes has returned nearly$ 0.5 billion to shareholders through share buybacks and dividends since 2022 [15] - The company completed a 2-for-1 stock split on January 2, 2025, reflecting confidence in its long-term growth [55] - The effective income tax rate for Q4 2024 was 22.1%, down from 23.2% in Q4 2023, benefiting from energy tax credits [45] Q&A Session Summary Question: Drivers of gross margin trajectory and expectations for 2025 - Management indicated that gross margin is primarily influenced by incentives and that improvements could occur if demand increases and financing costs stabilize [66] Question: Ability to meet full-year closings guidance - Management expressed confidence in meeting guidance, citing current market conditions and inventory levels [71] Question: Strategy regarding volume and margin balance - Management stated they are willing to adjust margins based on market conditions, with a focus on achieving volume targets [78] Question: Community count growth and regional performance - Management noted that community count growth is expected to be steady, with a focus on the Southeast region [111] Question: Long-term land strategy and joint ventures - Management confirmed the initiation of a joint venture for land financing in California, aiming for increased capital efficiency [118][126]