M/I HOMES Q2 FY26 earnings call MHO

M/I Homes reported a record 2,387 new contracts in Q2 FY26, a 15% increase year-over-year, with a monthly sales pace of 3.4 homes per community. For the first six months, sales reached 4,737 homes, up 8% from a year ago. The Smart Series, targeting first-time buyers, accounted for 43% of sales, down from 52% a year ago, indicating a slight shift towards move-up products. This shift is partly driven by market demand and strategic land acquisitions for higher-priced segments, with new communities opened in the first half having an average sale price of about $575, compared to the backlog average of $540.

The company's mortgage operation achieved a record 96% capture rate in Q2 FY26, up from 92% last year, contributing $14.4 million in pretax income. Average credit scores were 748, and average down payments were 15%. Mortgage rate buydowns remain the primary incentive, with government programs for spec homes offering rates slightly below 5% (4.875% 30-year fixed) and conventional rates slightly above 5%. Incentives are tailored to individual subdivisions and buyer needs, with a wide variety of programs offered beyond just rate buydowns.

M/I Homes owns approximately 23,500 lots (2.5-year supply) and controls an additional 25,700 lots via option contracts (5-year total supply). 60% of owned and controlled lots are in the Southern region. The company develops about 85% of its own land and is seeing more opportunities for finished lots from various sources. Inventory management is tight, with 510 completed inventory homes at quarter-end, down from 586 a year ago, aided by improved cycle times. Land spend in Q2 was $131 million for purchases and $155 million for development, totaling $286 million.

The balance sheet remains strong with $736 million cash, no borrowings on its $900 million revolving credit facility, and a net debt-to-cap ratio of negative 1%. Equity reached a record $3.2 billion, equating to a book value per share of $128, an $11 increase YoY. The company repurchased $50 million of stock in Q2, with $120 million remaining under authorization, having repurchased 19% of outstanding shares since 2022. Public debt matures in 2028 and 2030 with interest rates below 5%.

While overall housing conditions are considered "above average," some markets like Tampa and Sarasota are challenged by macro factors. Newer markets like Nashville and Fort Myers/Naples are gaining traction and expected to contribute significantly in the future, despite currently being a drag on earnings. The company remains vigilant about unforeseen events but is confident in its strong balance sheet and focus on fundamentals to navigate uncertainties, aiming for a solid 2026.