Meritage Homes Corporation Q1 FY2026 earnings call

Entering 2026, there were market challenges like a severe winter storm and military operations in Iran affecting sales. Operations had a 60-day closing guarantee, improved cycle times, community count grew to 345 by March 31, 2026, with plans for 5% - 10% community count growth in 2026. Focus on strategy with 60-day closing guarantee, move-in ready homes, strong realtor engagement. Also, stepped up share buybacks and increased dividend.

First quarter 2026 home closing revenue was $1.1 billion. Orders were 5% lower year over year, primarily due to an 18% decline in average absorption pace offset by a 17% increase in average community count. Home closing gross margin was 17.5%, 400 basis points lower than prior year.

Updating full year 2026 home closing volume and revenue to be at or within 5% of 2025 results. Q2 2026 projected home closings between 3650 - 3900 units, home closing revenue $1.37 - $1.47 billion, gross margin around 18%, effective tax rate 24.5% - 25%, diluted EPS $1.18 - $1.46.

Risks include macroeconomic factors like interest rate changes, inflation, geopolitical events (like military operations in Iran) impacting consumer confidence and sales. Also, risks related to land costs, inventory management, and potential changes in market conditions affecting margins.

Q: On spec count, others talk about reduction in specs easing margin pressure. Are you seeing lower spec count ease margin pressure?

A: A lot of builders are reducing finished inventory, less finished inventory to compete with, optimistic margin stability on go-forward basis.

Q: On off-balance sheet portfolio, what portion is land banks?

A: About 38% of total inventory control is off books, about a third is with land bankers.

Q: On land bank deals, percent of extended takedown schedules?

A: Small percentage of land book is land bank with lot financing, most deals performing fine.

Q: On long-term gross margin target, related to absorption rate?

A: Easier to get to long-term goal at four net sales per month, more efficient.

Q: On margin guide, sustainability?

A: Inventory levels stabilizing, volume with highest community count, direct cost improvements help.

Q: On cash flow, past drag from spec supply, now inflection point?

A: Discipline to get down to 14 specs per store relieved cash, expected maintained cash flows.

Q: On demand backdrop, cautiousness?

A: Buyer profile stretched on affordability, footprint in Sunbelt states with more inventory competition.

Q: On cancellation rate, strategy help?

A: Quick sale to close, low cancellation rate as buyers can't rethink in short time.

Q: On SG&A, back half of year impact?

A: Q1 high watermark for SG&A, back office automation for efficiencies.

Q: On new communities, absorption?

A: New communities in Q1 met expectations, expect more in back half.

Q: On storm impact, deliveries?

A: Storm caused lost days of sale, buyers captured in later months.

Q: On west segment strategy?

A: West region tougher, reallocating business, running at slower pace.

Q: On AI impact, other areas?

A: AI will have place in all sectors, starting with easy pieces.

Q: On mortgage rates inflection in buyer activity?

A: Below six or slightly below six drives buyer psychology change