Meritage Homes Profit Falls as Orders and Western Demand Weaken
Home-closing gross margin recovered sequentially to 18.3%, remaining well below its year-earlier level.
Meritage Homes (MTH), the home builder, reported lower second-quarter earnings as slower sales and weaker demand in the West outweighed a sequential improvement in closings.
The quarter extended a sharp reversal in order trends. Orders fell 9% from a year earlier after rising 3% in the comparable 2024 period, while the decline in average absorption widened to 19% from 4%. A 14% increase in average community count partly cushioned the slower sales pace.
Home-closing revenue fell 14% to $1.388 billion as closings declined 11% to 3,725 homes and the average selling price decreased 4% to $373,000. The revenue decline moderated from 17% in the first quarter, and revenue rose about 25% sequentially as closings increased 26%. Net earnings dropped 38% to $90.6 million, while diluted earnings fell 33% to $1.37 a share. Both measures improved sharply from the first quarter.
Demand remained under pressure despite the broader community base. Orders slipped about 2% sequentially to 3,575 homes, even as the order average selling price edged up to $385,000. Ending backlog declined 2% from a year earlier to 1,715 homes and fell about 8% sequentially, leaving backlog value at $661.9 million.
Weakness was concentrated in the West, where closings fell about 29% to 825 homes and orders declined about 24% to 762. Central-region closings decreased about 5%, while East-region closings were down about 2%.
Profitability improved from the start of the year while remaining below prior-year levels. Home-closing gross margin rose 80 basis points sequentially, continuing a recovery from its 16.5% trough in the fourth quarter of 2024, though it was 280 basis points below the year-earlier quarter. Lost leverage and higher lot costs outweighed direct-cost savings and faster cycle times.
Meritage now expects full-year home-closing volume and revenue to be around 5% below 2024 levels and revenue could trend lower if market conditions require greater incentives. It continues to project community-count growth of 5% to 10%.
The company slowed land acquisition and development spending 30% to $357 million while more than doubling quarterly share repurchases to $100 million. It also expanded its revolving credit facility to $980 million and extended its maturity to 2031, preserving liquidity as the weaker order pace reduced the backlog entering the second half.