"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

09 January 2007

MTH-Meritage orders drop 48%, sales down 60%,massive charges

So, surprise, Meritage Homes MISSED-big time. But look at the stats they reported:
* Backlog- down
* Net Sales orders (units)- down 42% to 1,201 homes from 2,072
* Net Sales Value ($)- down 51% to $356m from $723m
* Average selling prices dropped by over 15% from $348,938 to $296,420 per home
* Cancellations up to 48% (but what of those $1 options to purchase sold) Are cancellation rates actually closer to 75%??
* Claimed backlog of $1.2B is down 45% from $2.2B last year
* Backlog home carrying value is $325,645 per home which is almost 10% high than the actual ASP of homes sold in the recent quarter.

So, what are they expecting? A sudden surge in the ASPs of their carried homes? So maybe the backlog is under $1B or maybe a lot less with writeoffs to come...

Jan 9 (Reuters) - Meritage Homes Corp. (MTH.N: Quote, Profile , Research) said it expects land and inventory charges in the fourth quarter to reduce earnings by $1.25 a share to $1.50 a share. Net sales declined to 1,201 homes totaling $356 million in the latest fourth quarter, from 2,072 orders totaling $723 million in 2005 period, the home builder said in a statement.

And MTH is redefining the concept of "profit"

The company said it expects to remain profitable for the quarter. It added it estimated land and inventory charges at $55 million to $65 million, pre-tax.

Meritage says home orders plunge, estimates charges

BOSTON (MarketWatch) -- Meritage Homes Corp. (MTH :meritage homes corp com
News , chart, profile, more Last: 43.42-0.81-1.83%) As a percentage of quarterly gross sales orders, cancellations rose to a record 48%, the residential builder said.

Meritage Homes Q4 Results and Updated Estimated Impairment Charges
Tuesday January 9, 9:00 am ET
SCOTTSDALE, Ariz., Jan. 9, 2007 (PRIME NEWSWIRE) -- Meritage Homes Corporation (NYSE:MTH - News) today reported preliminary fourth quarter results and provided an update on estimated impairments of inventories and write-offs of option deposits, in advance of its scheduled earnings release later this month. Chairman and Chief Executive Officer Steven J. Hilton commented on the results, ``Based on our closings this quarter, we expect to report our 19th consecutive record year of revenue growth, a record we are proud to have achieved considering the challenging housing market of 2006. Even so, we saw a further decline in total home sales this quarter as demand remains slow in most of our markets.''

Hello, this guy must be working at a different company. Talk about "rose colored glasses !" Spin Away ! On November 9th, 2006, CEO Steve stated at a UBS-sponsored investor conference MTH could see between $15 million and $30 million of charges in its fiscal fourth quarter related to land options and real-estate write-downs, based on recent analysis. But today, he opined, ``As a result of the slower absorption rate and lower sales prices we are experiencing in many markets, we're estimating land and inventory charges this quarter of $55-65 million pre-tax."

Net sales declined to 1,201 homes totaling $356 million in the fourth quarter 2006, from the fourth quarter record of 2,072 orders totaling $723 million in 2005. Cancellations of orders represented 22% of the quarter's beginning backlog, compared to 13% of beginning backlog cancelled in the fourth quarter 2005. As a percentage of fourth quarter gross sales orders, cancellations represented a record high 48% of orders in 2006 compared to 32% in 2005. The Company is in the process of finalizing its quarterly analysis to ascertain the amount of charges required to reflect write-offs of lot option deposits and asset impairments based on current market conditions. While not yet concluded, Mr. Hilton offered this update. ``As a result of the slower absorption rate and lower sales prices we are experiencing in many markets, we're estimating land and inventory charges this quarter of $55-65 million pre-tax. These charges would reduce our earnings by $1.25-1.50 per diluted share, but we expect to remain profitable for the quarter.``We continue to actively renegotiate a number of option contracts that would enable us to move forward on projects that are no longer feasible at the land prices in the original contracts. But when these negotiations are unsuccessful, we must sometimes make the difficult decision to forfeit the option deposit and leave the project. We plan to continue to operate cautiously until we are confident that housing demand is strengthening in our markets,'' concluded Mr. Hilton.

Ummmm, there are some other "risk factors" to disclose. Their note prices may "fluctuate" in the future.
Meritage's business is subject to a number of risks and uncertainties, including: fluctuations in demand, competition, sales orders, cancellation rates and home prices in our markets; potential write-downs or write-offs of assets or deposits; interest rates and changes in the availability and pricing of residential mortgages; housing affordability; our success in locating and negotiating potential acquisitions; successful integration of acquired operations with existing operations; our investments in land and development joint ventures; our dependence on key personnel and the availability of satisfactory subcontractors; materials and labor costs; our ability to take certain actions because of restrictions contained in the indentures for our senior notes and the agreement for our unsecured credit facility; our lack of geographic diversification; the cost and availability of insurance, including the unavailability of insurance for the presence of mold; our potential exposure to natural disasters; the impact of construction defect and home warranty claims; demand for and acceptance of our homes; changes in the availability and pricing of real estate in the markets in which we operate; our ability to acquire additional land or options to acquire additional land on acceptable terms, particularly in our start-up markets; our exposure to obligations under performance and surety bonds, performance guarantees and letters of credit; general economic slow downs; consumer confidence, which can be impacted by economic and other factors such as terrorism, war, or threats thereof and changes in energy prices or stock markets; inflation in the cost of materials used to construct our homes; our level of indebtedness and our ability to raise additional capital when and if needed; legislative or other initiatives that seek to restrain growth or new housing construction or similar measures and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K/A for the year ended December 31, 2005, and our Form 10-Q for the quarter ended September 30, 2006, under the caption ``Risk Factors.'' As a result of these and other factors, the Company's stock and note prices may fluctuate dramatically.


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