M/I Homes Earnings Call: Strength Amid Margin Strain

M/I Homes Inc ((MHO)) has held its Q4 earnings call. Read on for the main highlights of the call.

M/I Homes Balances Record Strength With Margin Pressures in Latest Earnings Call

M/I Homes’ latest earnings call painted a story of contrast: on one hand, a fortress-like balance sheet, record shareholder equity, robust financial services performance and improving year-end sales momentum; on the other, notable margin compression, sizable inventory and warranty charges, and a meaningful decline in earnings and EPS versus last year’s record results. Management struck a cautiously confident tone, emphasizing financial flexibility and operational gains to navigate a challenging margin environment and regional softness.

Balance Sheet and Liquidity at Historic Strength

M/I Homes underscored that it ended 2025 in what management called the “best financial condition” in the company’s history. The homebuilder closed the year with $689 million in cash, no borrowings under its $900 million revolving credit facility, an 18% debt-to-capital ratio and net debt-to-capital of 0%. This balance sheet strength gives the company considerable flexibility to support growth, absorb market volatility and continue capital returns despite ongoing margin and demand variability.

Record Shareholders’ Equity and Book Value

Shareholders’ equity climbed to an all-time high of $3.2 billion, up 8% year over year, reinforcing the company’s long-term value creation. Book value per share also reached a record $123, a notable achievement in a year marked by earnings pressure. For equity-focused investors, these metrics signal a company that is building intrinsic value even as cyclical headwinds weigh on short-term profitability.

Solid Profitability Amid Headwinds

Despite a tough operating backdrop, M/I Homes delivered solid profitability. Excluding $59 million in inventory and warranty charges, full-year pretax income was nearly $590 million, equating to a 13% pretax margin before charges and 12% after. While this represents a step down from last year’s record levels, the company’s ability to maintain double-digit pretax margins in a pressured environment highlights underlying operational resilience.

Deliveries, Revenue and EBITDA Support Scale

The company’s scale remained evident in 2025, with 8,921 home deliveries and $4.4 billion in revenue for the year. EBITDA reached approximately $608 million, providing a strong cash-generating base to fund land investments, community expansion and shareholder returns. These results reflect a business that remains large and profitable even as it works through compressing margins and localized demand challenges.

Improving Fourth-Quarter Order Momentum

A key bright spot was the acceleration in fourth-quarter orders. New contracts rose 9% year over year in Q4, with monthly gains of 18% in October, 6% in November and 4% in December. The quarterly sales pace improved to 2.8 homes per community from 2.7 a year earlier. Regionally, southern orders increased 13% and northern orders 4%, suggesting some stabilization and renewed momentum as the year closed, which could support 2026 deliveries.

Mortgage and Financial Services as a Competitive Edge

The company’s financial services arm, particularly mortgage operations, delivered standout performance and a key strategic advantage. Capture rates were at record levels—93% for the full year, with mortgage capture at 94% in Q4—helping M/I Homes offer competitive financing solutions. Financial services produced record volume and pretax income of $56 million for the year, with $8.5 million from mortgage and title in Q4. This high capture helps the builder manage incentives, drive absorption and support profitability even as rate and price sensitivity remain high for buyers.

Robust Share Repurchases and Capital Return Strategy

Capital return remained a priority. M/I Homes repurchased $200 million of stock in 2025, including $50 million in the fourth quarter, and still has $220 million of buyback authorization remaining. Over the past three years, the company has retired roughly 13% of its outstanding shares, steadily enhancing per-share metrics. Combined with the strong balance sheet, this repurchase activity signals management’s confidence in the company’s long-term value and its ability to generate excess capital.

Operational Improvements Support Margin Management

Operationally, the company reported tangible efficiency gains. Construction costs improved with roughly a 2% year-over-year reduction, while cycle times shortened by about 5%, helping to support margins and improve returns on inventory. Customer quality metrics remained healthy, with the average buyer credit score at a strong 747 and average down payments close to 17% (around $90,000). These factors should help M/I Homes manage credit risk and pricing power as the market evolves.

Flexible Lot Strategy and Inventory Positioning

M/I Homes highlighted a flexible, option-heavy lot strategy as a key risk management tool. The company owns approximately 26,000 lots and controls another 24,000 through options, for a total of around 50,000 lots—equating to roughly a 5–6 year supply. Importantly, 49% of these lots are option-controlled, allowing the builder to adjust more quickly to shifts in demand or pricing without being overcommitted to land. This structure is especially valuable in a market where certain geographies and price points are under more pressure.

Community Count Growth and New Community Openings

Growth in community count continued in 2025. M/I Homes ended the year with 232 active communities, up from 220—a roughly 5% increase—and opened 81 new communities over the period. This expanded footprint supports future order growth and revenue potential, and management expects average community count in 2026 to be about 5% higher again, pointing to a strategic focus on market share and top-line resilience, even with near-term margin headwinds.

Margin Compression Remains a Central Challenge

Despite solid top-line and operational performance, margin compression weighed heavily on results. Excluding the $59 million of charges, full-year gross margin was 24.4%, down 220 basis points from 2024. In Q4, reported gross margin was 18.1%, dragged down by $51 million of charges; excluding those charges, Q4 gross margin would have been 22.6%. Management made clear that the margin environment remains difficult and is likely to remain a headwind into 2026.

Inventory and Warranty Charges Hit Results

M/I Homes recorded $59 million in inventory and warranty charges in 2025, with $51 million in Q4 alone, consisting of $40 million in inventory impairments and $11 million in warranty-related charges. These were primarily tied to entry-level communities with average selling prices below $375,000 and two communities in Florida. The charges reflect both localized softness and cost pressures in more affordable segments, and they were a key driver of the year’s margin and earnings decline.

Decline in Earnings and EPS From Record Levels

The combination of margin compression and charges resulted in a step down from 2024’s record profitability. Full-year pretax income, excluding charges, was nearly $590 million, down 20% from the prior year’s $734 million. Diluted EPS fell 25% to $14.74 from $19.71. While still strong by historical standards, these declines underline how much more challenging the operating environment has become and why management is focused on cost control, mix, and disciplined land investment.

Regional Performance Disparities

Performance diverged between regions. For the full year, new contracts declined 1% in the southern region and 9% in the northern region. Deliveries also weakened in certain northern markets, including an 8% year-over-year decline in Q4 northern deliveries. The softer northern performance contrasts with the southern region’s stronger Q4 orders and underscores the importance of geographic mix and market selection in sustaining overall growth.

Higher Inventory Levels and Finished Home Exposure

Inventory levels rose, adding some risk in a choppy market. Total homebuilding inventory increased 9% year over year to $3.4 billion. Completed inventory homes climbed to 1,030 units from 706 a year earlier, while total inventory homes grew to 2,779 from 2,502. This higher exposure to unsold inventory, particularly in an environment of margin pressure and regional unevenness, will require careful management of pricing, incentives and production to protect profitability.

Pressure in Entry-Level Price Segments

The most significant pressures were concentrated in lower price tiers. Impairments were focused on communities with average selling prices below $375,000, with notable weakness in markets such as Austin and San Antonio. These trends indicate that the entry-level buyer—most exposed to mortgage rates and affordability constraints—is facing more stress, requiring heavier incentives and contributing to the inventory impairments recorded during the year.

SG&A and Margin Headwinds Into 2026

Operating costs also crept higher relative to revenue. SG&A expenses in the fourth quarter were 11.6% of revenue, up from 11.0% in the prior-year period, adding to the profitability squeeze. Management cautioned that margins are expected to remain under pressure into 2026 and did not commit to whether the coming year’s margin pressure will be as severe as in 2025. This conservative stance signals that investors should expect continued focus on efficiency and mix rather than a rapid rebound in margins.

Lot Reductions in the Southern Region

While the overall lot pipeline remains solid, the company did note a reduction in its southern region land position. Owned and controlled lots are down by roughly 2,000 year over year, with owned lots in the southern region declining 11%. This could constrain near-term inventory positioning in some high-growth southern markets, potentially limiting upside if demand continues to firm, though the company’s broader lot flexibility partially offsets this risk.

Forward-Looking Outlook and Strategic Priorities

Looking ahead, management offered limited formal guidance but provided some key markers. The company expects its average 2026 community count to be about 5% above 2025, signaling continued measured growth in its selling footprint. It guided to an effective tax rate of roughly 23.5% for 2026 but declined to give margin guidance, reflecting uncertainty around pricing, incentives and costs. M/I Homes plans to continue using mortgage-rate buydowns—often targeting a sub-5% 30-year fixed rate via structures like 2/1 buydowns—leveraging its financial services platform and high capture rates to drive sales. Management repeatedly emphasized that the company’s strong balance sheet, sizable and flexible lot bank, remaining $220 million in share repurchase capacity, and well-laddered debt maturities provide a solid foundation to pursue growth and manage volatility.

In sum, M/I Homes’ earnings call revealed a company with enviable financial strength and operational discipline but facing real pressure on margins and earnings after a record 2024. Investors heard a balanced message: record equity and book value, expanding communities, and strong mortgage operations on one side, set against inventory charges, lower EPS, and ongoing affordability challenges on the other. How effectively the company can leverage its balance sheet, lot flexibility and financial services engine to stabilize margins will be central to its performance as the housing cycle evolves through 2026.