Meritage Homes Corporation Q2 FY2025 earnings call

• Strategy focus: Emphasizes move-in ready inventory and financing incentives to compete in challenging markets, providing certainty to customers.
• Community count: Second quarter 2025 ending community count was 312, the highest in company history, with planned growth in the second half of the year.
• Construction time: Reduced construction time from approximately 120 calendar days in Q1 2025 to about 110 days in Q2 2025.
• Agile strategy: Affordable spec building strategy with ability to adjust levers at local level, maintaining 4-6 months supply of specs on the ground.
• Land strategy: Disciplined yet flexible approach, routinely terminating land deals not aligning with criteria (e.g., ~1,800 lots terminated in Q2).
• Go-to-market: 60-day closing commitment and move-in-ready offerings compete with resale inventory, involving brokers in the buying process.
• Regional performance: Central region had highest average absorption pace of 5.2, East 4.1, West 3.9; some markets strong (Arizona, Dallas, etc.), others challenging (Florida, Colorado, etc.).

In the second quarter of 2025, Meritage Homes secured orders of 3,914 homes and delivered 4,170 homes. Home closing revenue was $1.6 billion. Adjusted home closing gross margin was 21.4% (excluding terminated land deal charges), and diluted EPS was $2.04. Book value per share increased 10% year-over-year. Second quarter 2025 orders were 3% higher year-over-year due to a 7% increase in average community count, partially offset by a 4% decrease in average absorption pace. ASP on orders this quarter was $395,000, down 5% from prior year due to increased utilization of rate buydown financing incentives.

• Q3 2025 guidance: Total home closings between 3,600 and 3,900 units, home closing revenue $1.4 billion to $1.56 billion, home closing gross margin around 20%, effective tax rate about 24.5%, diluted EPS $1.51 to $1.86.
• Full-year land spend: Lowered from $2.5 billion to $2 billion due to economic uncertainties.
• Share buybacks: Increased share repurchases, spent $45 million in Q2 2025 buying back over 674,000 shares, with $219 million remaining available.
• Dividends: Increased quarterly cash dividend 15% year-over-year to $0.43 per share, total dividends $31 million in Q2 2025.

• Market volatility: Mortgage rate fluctuations and consumer hesitancy impacting home buying demand.
• Affordability issues: Entry-level affordability remains a barrier to homeownership.
• Resale inventory: Elevated resale inventory in some markets posing competition.
• Land development costs: Land basis from several years ago remains elevated, with costs not yet notably declining but stabilizing.
• Tariffs: Uncertainty regarding tariffs impacting stick and brick costs.

Q: Trevor Allinson with Wolfe Research asked about absorption rates on new communities.

A: Phillippe Lord responded that new communities opened up in Q2 met expectations, achieving 4.3 net sales per month.

Q: Alan Ratner with Zelman & Associates inquired about volume outlook and spec starts.

A: Phillippe Lord said Q3 is a low volume quarter due to closing out spring demand, and they are slowing down starts based on cycle times but still starting specs in new communities. Hilla Sferruzza added they are rebalancing cash allocation from land spend to share repurchases.

Q: Stephen Kim with Evercore ISI asked about margins of new communities and cross-selling.

A: Phillippe Lord explained new communities are priced to gain momentum, and cross-selling is used to build relationships with brokers, with high cross-selling rates and competitors starting to follow similar strategies.

Q: John Lovallo with UBS questioned gross margin breakdown.

A: Hilla Sferruzza stated Q3 margin pullback is primarily due to loss leverage from lower volume, with no Q4 guidance provided but loss leverage being the main driver of margin pullback.

Q: Charles Perron-Piché with Goldman Sachs asked about broker commissions and stick/brick costs.

A: Phillippe Lord said broker commissions are market-based, and Hilla Sferruzza noted stick/brick costs have declined, with potential for further savings but no material impact from tariffs yet.

Q: Michael Rehaut with JPMorgan asked about full-year guidance and margin headwinds.

A: Phillippe Lord and Hilla Sferruzza explained lack of visibility due to low backlog and market uncertainty, and margin headwinds are primarily from increased incentive usage reducing ASP.

Q: Rafe Jadrosich with Bank of America inquired about fixed costs and community count growth.

A: Hilla Sferruzza said fixed cost deleveraging is primarily from loss leverage, and Phillippe Lord noted community count growth is in existing footprint, with overinvestment in some acquired markets.