Meritage Homes Q2 Earnings Call Highlights

Meritage Homes Q2 Earnings Call Highlights

Second-quarter results weakened as orders fell 9% year over year to 3,575, while home-closing revenue reached $1.4 billion and adjusted EPS was $1.42. Management said demand was broadly stable sequentially, but affordability pressures, higher rates and elevated incentives weighed on sales and pricing. Meritage reduced finished-home inventory by 27% and benefited from nearly 6% lower direct construction costs per square foot, helping adjusted gross margin improve sequentially to 18.6%. However, reported gross margin declined year over year because of lower revenue leverage and higher land costs. The company maintained its community-growth outlook and raised full-year closing and revenue expectations to roughly 5% below 2025 levels. Meritage also returned $131 million to shareholders in the quarter and plans to repurchase at least $55 million of stock quarterly for the remainder of 2026.

Meritage Homes NYSE: MTH reported lower second-quarter sales, revenue and earnings as affordability pressures and economic uncertainty contributed to a slower-than-normal spring selling season. Still, management said demand was broadly stable sequentially, construction costs improved and the company maintained its full-year outlook for community growth while raising its expectations for 2026 closings and revenue. Executive Chairman Steven Hilton said second-quarter orders totaled 3,575, down 9% from a year earlier. The company’s average absorption pace was 3.5 net sales per community per month, compared with 4.3 a year earlier and 3.6 in the first quarter. Hilton said there was “no meaningful sequential deterioration” in demand between the first and second quarters.

Meritage closed 3,725 homes during the quarter and generated $1.4 billion in home closing revenue. Adjusted home closing gross margin was 18.6%, while adjusted diluted earnings per share were $1.42, excluding $3.9 million of inventory impairments and terminated land-deal walkaway charges. Book value per share rose 5% year over year as of June 30.

Demand varied by market as incentives remained elevated

CEO Phillippe Lord said the company continued to encounter highly localized demand conditions. Parts of Texas, Southern California, Atlanta, Raleigh and the Coastal Carolinas were among its strongest markets, particularly where available housing inventory was limited. In contrast, demand was softer in Orlando, Denver, Salt Lake City and Northern California. Lord said temporary declines in mortgage rates during the quarter supported stronger demand and allowed Meritage to sell and close homes with lower-cost incentives. However, he noted that more recent increases in interest and mortgage rates could affect demand in the coming weeks if rates do not decline. The company’s cancellation rate rose to 13% from 11% in the first quarter but remained below typical industry averages, according to Lord. Meritage attributed that performance in part to its shorter sale-to-close process and move-in-ready inventory strategy. Average selling price on orders fell 3% year over year to $385,000, primarily because the company’s geographic mix shifted from higher-priced Western markets toward lower-priced Eastern markets. Home closing average selling price declined 4% to $373,000, also reflecting geographic mix, lower-priced homes selling faster than higher-priced homes within some communities, and incremental incentives on aged inventory in certain markets.

Inventory reduction and cost savings supported margins

Meritage reduced its finished-home inventory by more than 1,100 homes from the prior year, replacing older homes with newer product carrying lower direct c...