Meritage Homes Corp’s Earnings Call: A Mixed Bag

Meritage Homes Corp ((MTH)) has held its Q2 earnings call. Read on for the main highlights of the call.

Meritage Homes Corp’s recent earnings call painted a mixed picture of the company’s performance. The sentiment was buoyed by strong operational achievements such as a record community count and improved cycle times, alongside proactive shareholder returns. However, these positive aspects were counterbalanced by challenges including a decline in home closing revenue, gross margin pressure, and increased SG&A expenses due to prevailing market conditions.

Record Community Count

Meritage Homes achieved a significant milestone with a community count of 312 active stores, marking the highest in the company’s history. This achievement underscores the company’s strategic focus on expansion, with plans for further growth in the pipeline.

Improved Cycle Times

The company reported a reduction in construction times, from approximately 120 days to 110 days. This improvement in cycle times reflects enhanced operational efficiency, which is crucial for maintaining competitiveness in the housing market.

Strong Absorption Pace

Meritage Homes maintained a robust absorption rate of 4.3 net sales per month during the second quarter of 2025. This strong pace indicates healthy demand for the company’s offerings, despite broader market challenges.

Backlog Conversion

The company achieved an impressive backlog conversion rate of over 200%, which has positively impacted inventory turnover and cycle times. This efficiency is a testament to Meritage’s operational capabilities.

Shareholder Returns

Meritage Homes demonstrated its commitment to shareholders by increasing the quarterly cash dividend by 15% year-over-year and spending $45 million on share buybacks during the second quarter of 2025. These actions highlight the company’s focus on returning value to its investors.

Decline in Home Closing Revenue

Despite operational successes, Meritage Homes faced a 5% year-over-year decline in home closing revenue. This decrease was primarily attributed to increased financing incentives and a lower average selling price (ASP).

Gross Margin Pressure

The company experienced a significant drop in home closing gross margin, falling by 480 basis points to 21.1% in the second quarter of 2025. This pressure was due to increased financing incentives and higher land costs, impacting profitability.

Market Challenges

Meritage Homes encountered several market challenges, including increased mortgage rates and consumer hesitancy. Entry-level affordability continues to be a barrier to homeownership, posing a challenge for the company’s growth.

Higher SG&A Expenses

The company’s SG&A expenses as a percentage of home closing revenue increased to 10.2% from 9.3%, driven by higher commissions and speculative inventory carry costs. This rise in expenses reflects the challenging market environment.

Forward-Looking Guidance

Looking ahead, Meritage Homes has set ambitious goals. The company secured orders for 3,914 homes and delivered 4,170 homes in Q2 2025, achieving a home closing revenue of $1.6 billion. They reported an adjusted home closing gross margin of 21.4%, excluding terminated land deal charges. Meritage aims for double-digit year-over-year growth in community count by the end of 2025 and plans to reduce full-year land spend from $2.5 billion to $2 billion. The company maintains a healthy balance sheet with $930 million in cash and a net debt-to-capitalization ratio of 14.6%.

In conclusion, Meritage Homes Corp’s earnings call reflected a blend of operational successes and market challenges. While the company achieved record community counts and improved cycle times, it faced hurdles such as declining home closing revenue and gross margin pressure. Looking forward, Meritage remains focused on growth and operational efficiency, with strategic plans to navigate the evolving market landscape.