Certain homebuilders operating in certain stronger-than-normal regions might be seeing a light at the end of the tunnel. And the glow doesn't necessarily indicate the presence of an oncoming train. I'm thinking of Meritage Homes (NYSE: MTH ) today, because its just-released earnings provide a glimmer of hope.
There are a couple of things to focus on in the company's numbers. First, the net loss of $23 million, or $0.79 per share, was largely the result of $39 million in pre-tax charges. So far, so good. Without the charges, the company would have earned $5 million in the quarter.
Big deal, you say. This industry continues to be awash in charges, and until they subside, it's going to be tough slogging for the builders and their financials. And you're right, but there nevertheless are two other reasons to perceive that glimmer at Meritage: The quarter's charges were far lower than the $108 million (including a goodwill impairment charge) in the same quarter a year ago. And perhaps even more important was Meritage's garnering about 57% of its unit sales in Texas.
In the coming housing recovery -- and it is coming, although nobody knows how fast or how soon -- it's going to be location, location, location as never before. On that basis, it's especially important to note that Meritage benefited from its labors in Houston, Dallas/Fort Worth, Austin, and San Antonio.
Building on the economic vitality of those cities -- all of which were included among the nation's 10 fastest-growing metropolitan areas last year -- the company was able to reduce the decline in its number of orders in Texas to just 4%. In contrast, most of its charges in the quarter related to activities in California, which management continues to call its "toughest market."
Meritage's results follow reports last week from Ryland (NYSE: RYL ) and Pulte (NYSE: PHM ) . Both of those companies reported losses for the quarter, although Pulte was able to narrow its loss from a year ago. And I'm especially eager for reports by Toll Brothers (NYSE: TOL ) and Lennar (NYSE: LEN ) , two of the nation's stronger builders, although those results aren't due until September. In the meantime, it seems to me that Meritage is becoming worth a gander.