Meritage Homes Corporation (MTH) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows mixed signals. The company has strong community count growth and a positive long-term margin target, but the near-term guidance is flattish with some headwinds like higher interest rates and regional challenges. The Q&A reveals management's conservative approach and uncertainties, such as unclear margin impact and reliance on incentives. Despite potential tailwinds, the lack of clear guidance and the cautious stance on share repurchases suggest a neutral outlook, indicating a potential stock price movement within the range of -2% to 2%.
Key Financial Performance
Sales Orders Fourth quarter 2025 sales orders totaled 3,224, reflecting a 2% decrease year-over-year. This was primarily due to an 18% decline in average absorption pace, which was mostly offset by an 18% increase in average community count.
Home Closings Revenue Fourth quarter 2025 home closing revenue was $1.4 billion, a 12% decrease year-over-year. This was due to a 7% decrease in home closing volume and a 5% decrease in average selling price (ASP) on closings to $375,000 per home. The decline in ASP was attributed to increased use of incentives and discounts as well as geographic mix.
Adjusted Home Closing Gross Margin Adjusted home closing gross margin was 19.3%, down from 23.3% in the prior year. The decline was due to greater utilization of incentives and discounts, higher lot costs, and loss leverage, partially offset by improved direct costs and shorter cycle times.
Adjusted Diluted EPS Fourth quarter 2025 adjusted diluted EPS was $1.67, a 30% decrease year-over-year from $2.39 in 2024. This was driven by lower home closing revenue and gross profit.
Book Value Per Share Book value per share increased 7% year-over-year, reflecting the company's share buybacks and dividends.
Community Count Fourth quarter 2025 ending community count was 336, an all-time high and a 15% increase year-over-year compared to 292 at December 31, 2024.
Backlog Conversion Rate Backlog conversion rate was 221%, an all-time high for the company, reflecting the benefit of the 60-day closing rate guarantee.
Net Debt to Capitalization Net debt to capitalization was 16.9%, reflecting a healthy balance sheet.
Share Buybacks The company repurchased approximately 2.2 million shares in the fourth quarter of 2025, reducing the outstanding share count by 6% for the full year. This was a record $295 million worth of shares repurchased in 2025.
Land Spend Land spend in the fourth quarter of 2025 was $416 million, a 40% decrease year-over-year, as the company walked away from certain land positions and phased land development into smaller parcels.
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Operating Highlights
60-day closing guarantee: Continued to contribute to exceptional backlog conversion rate of 221%.
Spec inventory: Maintained a healthy supply of nearly completed spec inventory, aiding in backlog conversion.
Community count growth: Increased community count by 15% year-over-year to 336 communities, with plans for 5%-10% growth in 2026.
Regional performance: Strong absorption pace in Dallas, Houston, North and South Carolina; weaker demand in Austin, San Antonio, parts of Florida, Northern California, and Colorado.
Land portfolio optimization: Terminated certain land deals to redeploy capital towards share repurchases and acquiring new land in strategic locations.
Cycle time improvement: Achieved sub-110-day construction cycle times, improving operational efficiency.
Technology initiatives: Focused on automation and process efficiencies to improve back-office productivity.
Capital allocation: Redeployed $400 million towards share buybacks in 2026, emphasizing undervaluation of stock.
Market positioning: Positioned as a top 5 builder with a focus on spec building, move-in ready inventory, and a 60-day closing guarantee.
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Risk or Challenges
Market Conditions: The fourth quarter of 2025 experienced softer-than-anticipated market conditions due to affordability challenges and deteriorating buyer confidence. Elevated mortgage interest rates, job security concerns, and macroeconomic uncertainties are expected to continue impacting market conditions in the near term.
Demand and Sales: Sales orders were 2% lower year-over-year in Q4 2025, with an 18% decline in average absorption pace. Cancellation rates increased to 14%, and demand patterns were highly localized, with weaker demand in certain markets like Austin, San Antonio, parts of Florida, Northern California, and Colorado.
Land Deals and Portfolio: The company terminated certain land deals, incurring $27.9 million in walkaway charges, and recorded $7.8 million in impairments on owned inventory. These actions were taken to reallocate capital but reflect challenges in maintaining a profitable land portfolio under current conditions.
Incentives and Margins: Increased use of incentives and discounts to drive sales impacted margins. Adjusted home closing gross margin decreased to 19.3% in Q4 2025, down from 23.3% in the prior year. Elevated land development costs and higher lot costs also contributed to margin pressures.
Inventory Management: The company reduced its spec home inventory by 17% year-over-year, but the deliberate reduction reflects challenges in aligning inventory levels with demand. The backlog declined 24% year-over-year, indicating slower sales and potential risks to future revenue.
Regional Competition: Aggressive local competition in markets such as Austin, San Antonio, parts of Florida, Northern California, and Colorado led to lower sales volumes. The company chose to hold its ground in these markets, which may impact short-term performance.
Economic and Geopolitical Uncertainties: Broader macroeconomic and geopolitical uncertainties are creating a challenging environment for strategic planning and execution.
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Guidance & Outlook
Market Conditions and Demand: The company anticipates that near-term market conditions will continue to be impacted by elevated mortgage interest rates, job security concerns, and macroeconomic uncertainties. However, long-term housing demand is expected to remain supported by favorable demographics and an undersupply of affordable homes in the U.S.
Community Count Growth: Meritage expects a 5% to 10% growth in community count in 2026, building on the 15% growth achieved in 2025. This expansion positions the company to gain market share as macroeconomic conditions improve.
Sales and Absorption Pace: The company targets a long-term absorption pace of 4 net sales per month on average but is willing to temporarily moderate this target to optimize business in the current demand environment. Improved selling conditions in January 2026 compared to December 2025 provide some optimism for the spring selling season.
Land Portfolio and Capital Allocation: Meritage plans to redeploy capital towards share repurchases and new land acquisitions, focusing on enhancing its long-term portfolio. The company forecasts land acquisition and development spending of up to $2 billion in 2026.
Share Buybacks: The company is committed to redeploying $400 million towards share buybacks in 2026, with $100 million planned for each quarter, assuming no material market shifts.
Gross Margin and Cost Management: Meritage expects elevated incentive levels to continue in the near term but anticipates that lot costs as a percentage of ASP will return to historical averages starting in late 2027. The long-term gross margin target remains at 22.5% to 23.5%.
Financial Guidance for Q1 2026: The company projects Q1 2026 home closings between 3,000 and 3,300 units, home closing revenue of $1.13 billion to $1.24 billion, home closing gross margin of 18% to 19%, an effective tax rate of about 24%, and diluted EPS in the range of $0.87 to $1.13.
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Shareholder Return Plan
Dividend Increase: The company increased its quarterly dividend by 15% year-over-year to $0.43 per share in 2025, up from $0.375 per share in 2024.
Total Dividend Payout: The total cash dividend payout was $29 million in Q4 2025 and $121 million for the full year.
Cumulative Dividend Return: Since initiating the dividend program three years ago, the company has returned nearly $270 million to shareholders in the form of dividends.
Future Dividend Plans: The company plans to evaluate the 2026 quarterly cash dividend amount next month and will share updates publicly.
Share Buyback Program: The company repurchased approximately 2.2 million shares in Q4 2025, spending $150 million, which represents a 4x increase compared to the same period last year.
Full-Year Share Repurchase: For the full year 2025, the company repurchased $295 million worth of shares, reducing its outstanding share count by 6%.
Cumulative Share Buyback: Since mid-2018, the company has repurchased nearly $836 million worth of shares, reducing its outstanding common stock by 22%.
2026 Share Buyback Commitment: The company plans to programmatically buy back $100 million of shares in each quarter of 2026, assuming no material additional market shifts.
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Key Q&A
Q:What drove the change in your approach to absorption pace and what is the temporary new level of absorption to expect?
A:The company temporarily refocused on margin and not chasing incentives due to elevated incentives in Q4 as builders cleared aged inventory. They operated at a slower volume intentionally. For Q1, there is still some noise in the system, but they expect the spring selling season to improve absorptions and margins. The goal remains 4 net sales per store per month, but they are hedging based on builder competition.
Q:Are your specs per community where you want them now, and what portion of those specs are finished?
A:The company is not quite where they want to be. About 50% of specs are nearing finished or finished, but they aim for 1/3 finished, 1/3 move-in ready in 30 days, and 1/3 move-in ready in 60 days. The target of 17 specs per community is close, but it might decrease slightly depending on market conditions.
Q:Is the community count growth of 5% to 10% based on year-end count or average for the year?
A:The growth is based on the current year-end count, not an average for the year.
Q:Should the margin guidance for Q1 be interpreted as flattish adjusting for seasonality?
A:Yes, the margin guidance reflects typical seasonal pullback in Q1, with up to 100 bps of loss leverage in margins. There is some noise from Q4 incentives closing in Q1, but overall, margins are holding steady with potential improvement from the spring selling season.
Q:What are the potential headwinds and tailwinds for 2026?
A:Tailwinds include a strong starting backlog, higher community count growth, and potential stabilization in the incentive environment. Headwinds include higher interest rates, regional performance challenges, and consumer confidence, which is seen as a bigger issue than affordability.
Q:What is the outlook for the spring selling season and January demand trends?
A:The company expects the spring selling season to be better than Q4 but is uncertain if it will surpass last year's spring season. January showed better prospects, more buyers, and moderating incentives, but it is too early to determine if this is structural or temporary.
Q:What is the company's stance on share repurchase and federal government comments?
A:The company balances operational growth and returning capital to shareholders. They believe buybacks are a good investment when the stock is undervalued. They are collaborating with the federal government on affordability initiatives and will navigate any changes as needed.
Q:Is the newer strategy of driving volume and margins in Q1 and Q2 being pushed out?
A:The company is taking a conservative approach in Q1 due to a slow Q4 and lower starting backlog. They aim to optimize at 4 sales per month but will adjust based on the incentive environment.
Q:Are newer communities seeing stronger absorption pace than existing ones?
A:Newer communities are seeing modestly stronger absorption pace, but not as much as in a traditional housing environment. The company is not modeling elevated absorptions for new community openings in 2026.
Q:What are the potential cost savings from SG&A cuts in Q4?
A:The company expects material savings from overhead reductions and improved efficiencies from increased technology spend. They anticipate year-over-year SG&A leverage lift but are not providing specific guidance.
Q:What is the long-term target for debt to cap and off-balance sheet opportunities?
A:The long-term target is low 20% net debt to cap. The company is focused on increasing off-balance sheet partnerships and expects this percentage to grow in 2026.
Q:What is the margin impact of moving below 4 closings per community per month?
A:A small pullback to 3.5 closings per month would have a limited impact, estimated at 20-40 bps for the year, depending on leveraging and community-specific factors.
Q:Would the move-in ready strategy change if existing home inventory rises?
A:The strategy is designed to compete with existing homes by offering compelling options like guaranteed move-in timelines and transparency. It is not dependent on the current lock-in effect of existing home inventory.
Q:What is the impact of mortgage rate changes on builder incentives?
A:As rates decrease, the cost of rate buydowns shrinks. Builders may reallocate savings to other incentives or maintain current rates. Most builders are not taking savings back into margins yet.
Q:What drove higher other income during the quarter?
A:Higher other income was due to a higher-than-expected cash balance earning interest and legal settlement pickups.
Q:What percentage of homes use brokers, and what is the commission structure?
A:90% of homes use brokers, and the company pays market rate commissions with incremental loyalty programs for repeat sales.
Q:What percentage of ASP do incentives comprise?
A:The company does not provide specific incentive details but notes that incentives are running several hundred bps above historical averages.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance on the annualized benefit of SG&A cuts, full-year margin expectations, and the exact percentage of ASP comprising incentives. They also used vague language regarding the structural versus temporary nature of January demand trends and the potential impact of federal government comments on share repurchase plans.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ASP closing
Hilla
SGA
addition
asset
buyback dividend
capital buyback
capital share
closing home
condition closing
condition home
deal walkaway
decision
demand environment
estate
focus
high
home spec
impairment
incentive discount
incentive level
land basis
land deal
leverage commission
loss leverage
lot loss
lot termination
margin land
mid
opportunity land
option lot
ratio
repurchase
severance
share buyback
stock share
strength
supply spec
technology
term condition
view
walkaway charge
MTH Transcript
Meritage Homes Corporation (MTH) Q4 2025 Earnings Call Transcript
Unknown1-29
The earnings call summary shows mixed signals. The company has strong community count growth and a positive long-term margin target, but the near-term guidance is flattish with some headwinds like higher interest rates and regional challenges. The Q&A reveals management's conservative approach and uncertainties, such as unclear margin impact and reliance on incentives. Despite potential tailwinds, the lack of clear guidance and the cautious stance on share repurchases suggest a neutral outlook, indicating a potential stock price movement within the range of -2% to 2%.
Meritage Homes Corporation (MTH) Q3 2025 Earnings Call Transcript
Positive10-29
The earnings call summary reveals strong community count growth and strategic inventory management, with a focus on shareholder returns through increased buybacks and dividends. Although margins are slightly declining, management's optimistic guidance and strategic initiatives indicate a positive outlook. The Q&A section supports this with plans for cost optimization and market share gains. Despite some uncertainties, the overall sentiment is positive, suggesting a stock price increase of 2% to 8% in the coming weeks.
Meritage Homes Corporation (MTH) Q2 2025 Earnings Call Transcript
Unknown7-25
The earnings call presents a mixed picture. While there are positive indicators such as an increase in community count and lower cancellation rates, there are concerns about declining ASP and gross margins due to financing incentives. The Q&A section reveals management's cautious stance due to market uncertainties, with pulled full-year guidance and no specific Q4 margin guidance. The increase in stock buybacks is a positive factor, but the lack of clarity on future performance tempers enthusiasm. Overall, these factors suggest a neutral sentiment, with no strong catalysts for significant stock price movement.
Meritage Homes Corporation (MTH) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call reveals several concerns: a significant decrease in home closing revenue and EPS, declining gross margins, and increased SG&A as a percentage of revenue. Despite a 15% dividend increase and share buybacks, market uncertainties, tariff risks, and deteriorating consumer sentiment pose challenges. The Q&A section highlights management's uncertainty about pricing power and incentive levels, further contributing to a negative outlook. Overall, the financial performance and market conditions suggest a negative impact on the stock price in the short term.
MTH Slides
MTH Report
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