Taylor Morrison Home Corporation (TMHC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals a strategic expansion plan with new community openings and a focus on high-demand markets like Florida and Texas. Despite a mixed spec-to-built mix, the company is making progress. Cost management strategies offset potential headwinds, and strong absorption in new communities indicates robust demand. The Q&A confirms stable construction costs and positive pace dynamics, with incentives expected to improve. Although gross margins may face short-term pressure, the overall outlook is promising, suggesting a positive stock price movement over the next two weeks.
Key Financial Performance
Home Closings Delivered nearly 13,000 homes in 2025, with an adjusted home closings gross margin of 23%. This was achieved despite challenging market conditions and reflects a modest increase in closings volume while the industry was generally flat to down.
SG&A Expense Leverage Achieved 40 basis points of SG&A expense leverage on essentially flat home closings revenue. This was the only year-over-year SG&A leverage among peers, driven by operational efficiencies.
Return on Equity Achieved a 13% return on equity, driven by strong operational performance and $381 million of share repurchases.
Book Value Per Share Grew by 14% year-over-year, attributed to strong financial performance and share repurchases.
Net Orders Net orders in Q4 2025 totaled 2,499 homes, down 5% year-over-year due to a moderation in monthly absorption pace and offset by a 1% increase in community count.
Home Closings Revenue Generated approximately $7.8 billion in home closings revenue for 2025, with an average price of $597,000 per home. This was supported by cycle time improvements and efficient production.
Home Closings Gross Margin Reported a home closings gross margin of 22.5% for 2025, down from 24.4% in 2024, due to higher incentive levels and a greater mix of lower-margin spec home closings.
Spec Home Inventory Reduced spec home inventory by 24% since Q2 2025, ending the year with nearly 3,000 unsold homes, including just over 1,200 finished homes. This reduction was part of inventory management efforts.
Land Investment Invested approximately $2.2 billion in homebuilding land in 2025, down from $2.4 billion in 2024, reflecting cautiousness in approving new land deals.
Net Income Reported net income of $783 million for 2025, or $7.77 per diluted share. Adjusted net income was $830 million, or $8.24 per diluted share, after excluding certain charges.
Liquidity Ended 2025 with approximately $1.8 billion in liquidity, including $850 million in unrestricted cash and $928 million in available credit facility capacity.
Net Homebuilding Debt to Capitalization Ratio Reduced to 17.8% at the end of 2025, down from 20% a year ago, reflecting disciplined financial management.
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Operating Highlights
Esplanade resort lifestyle communities: Premier Esplanade communities experienced 7% year-over-year net order growth, with over 20 new outlets planned for 2026.
Build-to-rent platform (Yardley): Yardley develops rental communities with private backyards and amenities. Sold one community for $55 million in Q4 2025 and has 46 projects representing 10,400 homesites.
AI-powered platform: Proprietary AI tools deployed across purchasing, sales, customer service, and financial services to enhance efficiency and manage costs.
Geographic performance: Sales were strongest in Florida, California, and Phoenix, while Texas, particularly Austin, experienced softness.
Consumer segments: Orders by buyer group: 31% entry-level, 49% move-up, and 20% resort lifestyle. Focus on move-up and resort lifestyle segments for growth.
Cycle time improvements: Construction cycle times improved by over 9 weeks compared to two years ago, enhancing production flexibility.
Spec home inventory: Reduced spec home inventory by 24% since Q2 2025, with 3,000 unsold homes remaining.
Land investment strategy: Limiting land investments in noncore submarkets to focus on core markets with stronger fundamentals.
Community openings: Over 100 new community outlets planned for 2026, including 20+ Esplanade outlets, to drive growth.
Focus on move-up and resort lifestyle segments: Targeting these segments due to higher margins and strong demographic support.
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Risk or Challenges
Market Conditions: Persistent affordability constraints, especially among first-time homebuyers, and elevated industry-wide inventory levels are creating challenges. Competitive dynamics in the marketplace, including pricing and incentives, are heavily influencing consumer purchase decisions.
Economic Uncertainty: Consumer confidence in the broader economic and political outlook is critical for demand recovery. Softer consumer confidence and heightened pricing competition have been noted as challenges.
Backlog and Sales Dependency: Lower-than-normal backlog of homes entering 2026 makes home closing deliveries and margins more dependent on sales during the spring selling season, increasing operational risk.
Spec Home Inventory: High levels of unsold spec home inventory (nearly 3,000 homes, including 1,200 finished homes) are expected to temporarily impact gross margins in the first half of 2026.
Land Investment Strategy: Limiting incremental land investment in noncore submarkets due to greater pricing pressure and compressed margin opportunities. This shift may impact short-term growth in certain areas.
Build-to-Rent Platform: The Yardley build-to-rent platform faces potential risks from evolving market dynamics and regulatory scrutiny, although it is currently not impacted by recent executive orders.
Construction Costs and Margins: Higher lot costs expected to rise in the mid-single-digit range, coupled with a reliance on spec homes, may pressure gross margins in the near term.
Geographic Market Performance: Softness in the Central region, particularly in Texas and Austin, contrasts with stronger performance in Florida, California, and Phoenix, indicating regional disparities in demand.
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Guidance & Outlook
2026 Home Closing Deliveries and Margins: Home closing deliveries and margins in 2026 will depend more on sales during the spring selling season due to a lower-than-normal backlog of just over 2,800 homes.
New Community Openings: The company plans to accelerate the number of new community openings in 2026, with over 100 new outlets planned, including 20 new Esplanade outlets. Most of these will open in the first half of the year and contribute to closings in the second half and into 2027.
Shift in Sales Mix: The company expects a shift back to a more balanced mix of spec and to-be-built orders, with to-be-built sales gaining 700 basis points of share in January compared to the fourth quarter of 2025. This shift is expected to drive long-term margin potential.
Spec Home Inventory: The company aims to responsibly sell through its spec home inventory, which was reduced by 24% since Q2 2025 but still includes nearly 3,000 unsold homes. This inventory management is expected to temporarily impact gross margins in the first half of 2026.
Long-Term Growth Target: The company continues to target outsized growth over the next several years, including an aspiration to reach 20,000 closings, but emphasizes that growth will not come at the expense of attractive returns on invested capital.
Land Investment Strategy: The company is limiting incremental land investment in noncore submarkets to focus on core markets with stronger pricing and margin opportunities. This shift aims to better align offerings with strategic priorities.
Esplanade Resort Lifestyle Communities: The company plans to expand its Esplanade brand, which delivers higher home prices and gross margins. This segment is expected to grow meaningfully in contribution to the bottom line in the coming years.
Build-to-Rent Business (Yardley): The company is scaling its Yardley build-to-rent platform, with 46 projects representing approximately 10,400 homesites. This segment is expected to grow as less than 10% of Yardley's total units are currently on the balance sheet.
2026 Home Closings and Pricing: The company expects to deliver around 11,000 homes in 2026, with an average closing price between $580,000 and $590,000. First-quarter deliveries are expected to be around 2,200 homes, with an average price of $580,000.
Gross Margin Expectations: Gross margins are expected to improve gradually throughout 2026, driven by an increase in to-be-built home deliveries and a modest reduction in incentives. However, first-quarter gross margins are expected to be approximately 20% due to a higher share of spec homes.
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Shareholder Return Plan
Share Repurchase: In 2025, Taylor Morrison repurchased a total of 6.5 million shares, representing approximately 6% of the beginning diluted share count, for approximately $381 million. During the fourth quarter, 1.2 million shares were repurchased for $71 million. The Board of Directors approved an increase and extension of the share repurchase authorization to $1 billion, expiring on December 31, 2027. For 2026, the company expects to repurchase approximately $400 million of common stock.
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Key Q&A
Q:Where do you see the entry-level mix going over time, and what are the specific geographies or submarkets where you want to lean in or deemphasize?
A:The entry-level mix is expected to decrease slightly, with a focus on refocusing geographically rather than departing from the first-time buyer business. The company plans to avoid buying land in fringe or tertiary locations that attract different entry-level buyers. Geographically, there will be less investment in California due to underwriting constraints, while Florida, Texas, Phoenix, and Colorado will see continued investment. Florida remains a key market for the Esplanade brand.
Q:What is the intention around the spec versus to-be-built mix, and can it reach 50-50 by 2026?
A:The company aims to move towards a 50-50 mix but does not expect to achieve it by 2026. Currently, the mix is around 60-40, and progress is being made with to-be-built sales increasing. However, the transition will take time as the company works through existing spec inventory.
Q:Should we think of any mix shift in Esplanade communities as more of the business comes from Esplanade?
A:No significant change in pace is expected for Esplanade communities. Absorptions are consistent with the rest of the business, with some communities running slightly higher or lower. The company aspires to return to an annualized pace of a low 3 but will not prioritize inventory sales at all costs.
Q:Is there any risk to the outlook of flattish construction costs this year, and where do you see costs trending beyond?
A:While lumber prices have ticked up recently, the company is focused on offsetting potential headwinds through house cost reduction strategies, optimizing floor plans, and working with trade partners and suppliers. The outlook for flattish construction costs remains stable.
Q:Could you bridge the sequential gross margin decline for 1Q and explain if gross margin in 2Q will be similar to 1Q?
A:The sequential gross margin decline for 1Q is primarily due to a mix shift, with more entry-level community closings and fewer higher-margin homes. Incentives remain elevated. Margins are expected to gradually increase over the year as the mix shifts to more to-be-built homes and existing inventory is worked through.
Q:How have absorptions been performing in new communities relative to legacy ones?
A:Absorptions in new communities are strong and consistent with historical spreads. Examples include a new community in Phoenix with over 100 units sold shortly after opening. Traffic and interest in new communities have been robust, with some communities having waiting lists or significant interest.
Q:What are the pace dynamics seen over the past couple of months, and how do incentives factor into the gross margin guidance?
A:Pace dynamics have shown improvement, with December better than November and January better than December. Incentives remain elevated but are expected to improve as the mix shifts to more to-be-built homes. The company is also taking price increases where possible.
Q:What is the trend of incentives from the beginning of 4Q to the end of 4Q, and how does it impact 1Q gross margin guidance?
A:Incentives were relatively flat from the beginning to the end of 4Q. The 1Q gross margin guidance reflects higher incentives for entry-level homes and a mix shift to more affordable positions.
Q:What is the rationale behind the shift away from noncore submarkets and towards move-up and resort lifestyle price points?
A:The shift is due to better land deals and less competition in move-up and resort lifestyle markets. These segments offer higher returns and align with the company's historical focus. The move-up and Esplanade buyers are financially stronger, making them less risky compared to first-time buyers.
Q:What is the inflation seen in land contracting today, and is there an expectation for relief in the future?
A:Land inflation is currently low single digits, with stabilization in the land market. The company has been successful in renegotiating land deals, and relief in land inflation is expected to continue.
Q:What are the dynamics in the Texas market, and how is the company managing starts relative to orders?
A:Texas has seen mixed performance, with Austin experiencing the greatest pullback in volume but maintaining strong margins. Dallas and Houston have held steady or improved. The company plans to align starts with sales on a go-forward basis.
Q:What is the strategy for managing spec inventory, particularly at the entry level?
A:Spec inventory is managed on a community-by-community basis. Entry-level communities may have higher spec counts, while move-up and resort lifestyle communities have fewer. The company is focused on balancing inventory levels with demand.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about whether gross margin in 2Q will be similar to 1Q, stating they would not discuss beyond Q1. Additionally, they were vague about the exact pace dynamics year-over-year, only suggesting it might be slightly down without providing specific data.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Curt
SGA
Taylor Morrison
abandonment
affordability
agent
area
aspiration
capital allocation
community development
core market
digit decline
driver
effort
end homebuilding
expense leverage
family rental
flexibility
home community
home delivery
home end
home price
home sale
interest expense
journey
lifestyle market
moment
offering need
outlet Esplanade
peer
production inventory
purchasing
return capital
sale floor
share home
share income
shift
sign
strength
warranty
wellness
TMHC Transcript
Taylor Morrison Home Corporation (TMHC) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call summary reveals a strategic expansion plan with new community openings and a focus on high-demand markets like Florida and Texas. Despite a mixed spec-to-built mix, the company is making progress. Cost management strategies offset potential headwinds, and strong absorption in new communities indicates robust demand. The Q&A confirms stable construction costs and positive pace dynamics, with incentives expected to improve. Although gross margins may face short-term pressure, the overall outlook is promising, suggesting a positive stock price movement over the next two weeks.
Taylor Morrison Home Corporation (TMHC) Q3 2025 Earnings Call Transcript
Positive10-22
The earnings report shows strong financial performance with a significant increase in gross margin and net debt reduction. The company is actively managing its backlog and inventory while maintaining profitability. The Q&A highlights positive demand trends and effective cost management. Despite some uncertainties in management responses, the strategic focus on shareholder returns and innovative customer engagement strategies suggests a positive outlook. The company's proactive approach to addressing market challenges and strong liquidity position further support a positive sentiment.
Taylor Morrison Home Corporation (TMHC) Q2 2025 Earnings Call Transcript
Unknown7-23
The earnings call summary indicates mixed signals: strong home closing revenue and improved margins are positive, but guidance for Q3 and the full year shows a decline in gross margins. The Q&A section highlights cautious consumer sentiment and increased cancellation rates, but also notes some relief in development costs. The lack of specific guidance for future community growth and the mixed performance in key regions add uncertainty. Overall, these factors suggest a neutral outlook for the stock price in the near term.
Taylor Morrison Home Corporation (NYSE:TMHC) Q1 2025 Earnings Call Transcript
Positive4-24
The earnings call summary shows strong financial metrics with EPS up 25%, improved gross margins, and a robust share repurchase program, which are positive indicators. Despite a slight decline in net orders, the company maintains healthy liquidity and a low debt ratio. The Q&A reveals positive demand in key markets and strategic use of incentives to manage inventory. Although there is some uncertainty regarding tariffs and exact future sales figures, the overall sentiment remains positive, bolstered by the company's strategic initiatives and financial health.
TMHC Slides
TMHC Report
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