Meritage outlines Q4 2025 home closing revenue guidance of $1.46B-$1.54B amid rising community count and persistent incentive environment

Earnings Call Insights: Meritage Homes Corporation (MTH) Q3 2025

MANAGEMENT VIEW

* CEO Phillippe Lord reported that "market conditions were softer than initially expected in Q3 as consumer confidence continued to decline amid a tough economic backdrop and ongoing affordability concerns." He highlighted a 4% year-over-year increase in orders to 3,636 units and an average absorption pace of 3.8, driven by the company’s strategy focused on affordable move-in ready homes and a 60-day closing-ready guarantee.
* Lord emphasized the company’s ability to rapidly convert backlog, stating, "more than 60% of our orders in Q3 closing this quarter, generating a 211% backlog conversion rate this quarter on 3,685 home deliveries and home closing revenue of $1.4 billion."
* The CEO noted, “We intentionally slowed our starts by 19% year-over-year to remain within our target range of 4 to 6 months' supply of specs on the ground while not impacting our sales velocity.”
* Lord explained that the company reduced the number of lots acquired by about 5,800 lots or 70% year-over-year without sacrificing near-term community count growth.
* CFO Hilla Sferruzza stated, "Third quarter 2025 home closing revenue of $1.4 billion was 12% lower than prior year as a result of both 7% lower home closing volume and a 5% decrease in ASP on closings to $380,000 per home."
* Sferruzza added, "Our Q3 2025 margins included $8.7 million of real estate inventory impairments and $5.8 million of walkaway charges for land deals we are no longer pursuing."

OUTLOOK

* The company projects Q4 2025 total home closings between 3,800 and 4,000 units, home closing revenue of $1.46 billion to $1.54 billion, home closing gross margin of 19% to 20%, an effective tax rate of about 24.5% and diluted EPS in the range of $1.51 to $1.70.
* Lord commented, “We anticipate holding our community count fairly steady from Q3 to Q4 to end the year with a mid-double-digit year-over-year growth. Based on our current land pipeline, we expect another additional double-digit year-over-year growth for 2026 year-end community count.”
* Management expects the cost and utilization rate of incentives to “begin to taper off as market conditions stabilize,” but they are currently “far north of where we typically are as an industry for the near future.”

FINANCIAL RESULTS

* Home closing revenue for Q3 2025 was $1.4 billion, representing a 12% decline year-over-year.
* ASP on closings fell to $380,000 per home, mainly due to increased incentives and discounts.
* Home closing gross margin was 19.1% in Q3 2025, down from 24.8% in Q3 2024, impacted by incentives, impairment and walkaway charges, higher lot costs, and reduced leverage of fixed costs.
* Adjusted gross margin, excluding inventory-related charges, was 20.1%.
* SG&A as a percentage of home closing revenue rose to 10.8% from 9.9% in Q3 2024, driven by higher commission rates and technology costs.
* Diluted EPS decreased 48% year-over-year to $1.39; adjusted diluted EPS was $1.55 excluding charges.
* The company returned $85 million to shareholders in Q3 2025 and increased its quarterly dividend by 15% year-over-year to $0.43 per share.

Q&A

* Alan Ratner, Zelman & Associates LLC: Asked about the impact of the current spec strategy on inventory turnover and whether there’s room for improvement. Lord responded, "I think when things are working really well and everything is fully optimized, we can get closer to a 4-month supply of specs versus the current 5 to 6. So as we look into 2026, we think there's a real opportunity to do that."
* Trevor Allinson, Wolfe Research, LLC: Questioned the timeline for reducing specs per community and starts alignment. Lord replied, “I would love to see that closer to 16 based on current market conditions. So we'll work to accomplish that throughout next year.”
* Stephen Kim, Evercore ISI: Sought clarification on margin profiles of new communities. Lord said, “New communities are coming on similar to the margin profile we have today, and we're not necessarily predicting them to get better.”
* Michael Rehaut, JPMorgan: Asked about share repurchase cadence. Sferruzza answered, “I think what we've done this quarter is probably a fair number to model... we're definitely comfortable going deeper than that.”
* John Lovallo, UBS: Inquired about how quickly the sales environment could change with improved confidence. Lord stated, “If the buyer psychology changes, I think we can capture market share really, really quickly.”

SENTIMENT ANALYSIS

* Analysts’ sentiment was neutral to slightly negative, with repeated concerns about margin trends, incentive burden, inventory strategy, and the sustainability of community growth.
* Management’s tone was pragmatic, acknowledging headwinds and margin pressures but expressing confidence in operational flexibility and future growth through statements such as "we remain optimistic about the long-term outlook for the housing market" and “we believe our flexible strategy is our competitive advantage.”
* Compared to the previous quarter, management’s tone was slightly more defensive, especially around margin compression and incentive use, while analysts pressed for clarification on future profitability and inventory management.

QUARTER-OVER-QUARTER COMPARISON

* Guidance shifted from only providing Q3 guidance in the previous quarter to a clear Q4 forecast this quarter.
* Community count growth accelerated, rising from 312 in Q2 to 334 in Q3, maintaining the trajectory of double-digit expansion.
* Margins continued to compress, with Q3 2025 gross margin at 19.1% (or 20.1% adjusted), down from 21.1% (or 21.4% adjusted) in Q2.
* Management’s confidence in long-term targets was balanced by caution regarding persistent headwinds, whereas the previous quarter’s tone was more optimistic about maintaining efficiency gains and offsetting incentive-related pressures.
* Analysts shifted focus from absorption rates and new community performance in Q2 to sharper scrutiny on inventory turnover, margin sustainability, and capital allocation in Q3.

RISKS AND CONCERNS

* Management cited persistent affordability concerns, soft consumer confidence, and a challenging economic backdrop as ongoing obstacles.
* The high and persistent use of incentives is pressuring margins, with Lord stating, "we anticipate the incentive burden to continue running far north of where we typically are as an industry for the near future."
* Exposure to higher land development costs from prior years continues to weigh on current results.
* Regional market softness, particularly in Austin, San Antonio, Florida, Northern California, and Colorado, remains a challenge, with affordability and lack of urgency cited.
* Management highlighted potential risk from tariffs and immigration-related labor issues, while noting ongoing efforts to mitigate land and construction cost pressures.

FINAL TAKEAWAY

Management emphasized that despite a softer demand environment and continued margin compression due to incentives and higher land costs, Meritage Homes is prioritizing operational flexibility, optimizing community-by-community performance, and maintaining a strong balance sheet. The company projects stable community counts into Q4 and expects another year of double-digit community growth in 2026, with guidance reflecting ongoing caution amid persistent affordability challenges. Returning capital to shareholders remains a focus as Meritage adapts to the evolving market landscape and positions itself for long-term growth.

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

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