M/I Homes signals 5% community count growth for 2025 as gross margins stabilize amid market challenges

Earnings Call Insights: M/I Homes, Inc. (MHO) Q3 2025

MANAGEMENT VIEW

*
CEO Robert Schottenstein opened by noting "Despite the continued challenging market conditions and choppy, uneven demand environment, we had a very solid third quarter." He reported $140 million pretax income, down 26% year-over-year, and highlighted a pretax income percentage of 12% of revenue with gross margins of 24%. The company closed a third quarter record 2,296 homes and reported total revenue of $1.1 billion, a 1% decrease. Schottenstein emphasized, "housing conditions are just okay, certainly not great, but still just okay, probably about a C plus," and reiterated the ongoing use of mortgage rate buydowns to drive sales, which "are the primary reason for the decline in our gross margins." Smart Series homes made up 52% of total sales, and the company ended the quarter with 233 communities, on track for about 5% community count growth for the year.

*
CFO Phillip Creek stated, "Our new contracts were down 6% when compared to last year... our cancellation rate for the third quarter was 12%." He provided regional breakdowns, with the Northern region up 9% in community count and the Southern up 6%. Creek detailed that "our third quarter gross margin was 23.9%, down 320 basis points year-over-year with 60 basis points of the decline due to $7.6 million of inventory charges."

*
Derek Klutch, President & CEO of M/I Financial, highlighted, "Our mortgage and title operations achieved pretax income of $16.6 million, an increase of 28% from $12.9 million in 2024's third quarter. Revenue increased 16% from last year to a third quarter record $34.6 million due to higher margins on loans sold, a higher average loan amount and an increase in loans originated."

OUTLOOK

*
The company maintained its estimate of average 2025 community count growing about 5% from last year. Schottenstein said, "We are well positioned as we begin the fourth quarter of 2025." Management indicated continued use of mortgage rate buydowns and ongoing focus on inventory management.

*
Creek stated, "Our target is always to grow community count in that 5% to 10% range a year. Like I said, last year, it was 7%, this year is probably going to be about 5%." He confirmed, "we're still in great shape to continue growth."

FINANCIAL RESULTS

*
Third quarter total revenue was $1.1 billion, a 1% decrease compared to the previous year. Pretax income was $140 million, with a gross margin of 23.9%, down 320 basis points year-over-year. Earnings per diluted share for the quarter decreased to $3.92 from $5.10 last year. Book value per share increased to $120, up $16 from a year ago.

*
Inventory charges totaled $7.6 million, comprised of $6 million in impairments and $1.6 million in lot deposit due diligence costs. SG&A expenses were $11.9 million of revenue, up from $11.2 million a year ago. EBITDA was $157 million, compared to $198 million last year. Cash balance at quarter-end was $734 million, with no borrowings under the $900 million credit facility.

*
The mortgage division reported $16.6 million pretax income and $34.6 million in revenue, with a 93% capture rate, up from 89% last year.

Q&A

*
Kenneth Zener, Seaport Research Partners: Asked about seasonality in orders and incentives. Schottenstein replied, "we have concluded that there is no better way to do that than through the selective use of mortgage rate buydowns...the significant majority of [margin decline] is rate buydowns."

*
Zener followed up on regional margin trends. Schottenstein noted, "Orlando...is stronger than Tampa and Sarasota...Austin...has cooled considerably. We've seen margins drop also in Houston and Dallas, but comparatively, I think they're still holding up quite well."

*
Alan Ratner, Zelman & Associates LLC: Inquired about margin trends and outlook. Schottenstein responded, "we're a lot closer to the bottom than we were last quarter. How close are we? That remains to be seen...Absent the impairments, they're about 250 basis points down year-over-year."

*
Buck Horne, Raymond James: Asked about order trends in the North and South. Creek explained, "The real -- last September, we sold like 775 homes...so that is really the reason that you're seeing the down sales quarter-to-quarter."

*
Horne also asked about selling costs. Creek stated, "the actual expenses were up 6% versus a year ago. We have 7% more communities, and you do have cost for every store...We also did have a slightly higher sales commission rate, internal and external, again, trying to drive traffic and sales."

*
James McCanless, Wedbush: Asked about spec versus build-to-order margins. Creek replied, "They're a little lower. It really depends on the community, every location, a little is different, but in general, they're just a little lower than to be built."

SENTIMENT ANALYSIS

*
Analysts displayed a neutral to slightly cautious tone, focusing on incentives, regional performance, and margin pressures. Probing questions on margin sustainability and order trends reflected concern about ongoing challenges.

*
Management maintained a confident but realistic stance, acknowledging market difficulties while emphasizing operational strengths and financial discipline. Schottenstein stated, "We remain quite optimistic about our business and continue to believe that our industry will benefit from the undersupply of homes."

*
Compared to the previous quarter, management's tone shifted to a slightly more defensive posture regarding margin pressures, but confidence in long-term growth and balance sheet strength remained consistent.

QUARTER-OVER-QUARTER COMPARISON

*
Guidance for community count growth was reiterated at about 5%, consistent with the prior quarter. Gross margin declined further from 24.7% in Q2 to 23.9% in Q3. SG&A expenses rose in line with a growing community count.

*
Analysts maintained focus on margin outlook, regional trends, and incentive strategies. Management addressed similar themes but conveyed increased attention to cost containment and inventory management.

*
Strategic priorities remained on community expansion, operational discipline, and balance sheet strength. Management's confidence in weathering current market conditions held steady, though acknowledgement of margin headwinds was more pronounced.

RISKS AND CONCERNS

*
Management cited challenging market conditions, uneven demand, and the need for ongoing mortgage rate buydowns as primary business risks. Inventory charges and margin pressures from incentives and land costs were highlighted.

*
Analysts raised concerns about competitive incentives, regional order trends, and margin sustainability. Management outlined mitigation through selective use of rate buydowns, careful inventory management, and strong balance sheet positioning.

FINAL TAKEAWAY

M/I Homes emphasized its resilience in the face of challenging market conditions, highlighting steady community expansion, disciplined cost management, and strong liquidity. The company remains committed to growing its community count by about 5% in 2025, deploying targeted incentives to drive sales while closely monitoring margins and inventory levels. Management underscored confidence in its strategic positioning and ability to adapt as market dynamics evolve.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/mho/earnings/transcripts]

MORE ON M/I HOMES

* M/I Homes, Inc. (MHO) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4832016-m-i-homes-inc-mho-q3-2025-earnings-call-transcript]
* M/I Homes Breaks Out As A Part Of The Builder Bearish To Bullish Reversal [https://seekingalpha.com/article/4809361-mi-homes-stock-q2-breaks-out-as-part-of-the-builder-bearish-to-bullish-reversal-upgrade-buy]
* M/H Homes stock slides after Q3 earnings miss; cancellation rates stay high [https://seekingalpha.com/news/4506641-mh-homes-stock-slides-after-q3-earnings-miss-cancellation-rates-stay-high]
* M/I Homes Q3 2025 Earnings Preview [https://seekingalpha.com/news/4506094-m-i-homes-q3-2025-earnings-preview]
* Seeking Alpha’s Quant Rating on M/I Homes [https://seekingalpha.com/symbol/MHO/ratings/quant-ratings]