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    MTH
    Earnings call· Mar 2026(Q1 FY26)

    Meritage Homes Q1 FY26 earnings call MTH

    Apr 23, 2026 Source

    Executive summary

    Meritage Homes Q1 FY26 — Community Count Growth and Capital Returns Amidst Market Caution

    Meritage Homes navigated a cautious Q1 FY26, marked by market choppiness and increased incentives, yet achieved record community count and strong capital returns. The company's strategy of spec building, quick closings, and disciplined capital allocation positions it for future market share gains as demand normalizes, despite current affordability pressures and fragile consumer confidence.

    Highlights

    5

    • Community count grew to 345, up 19% year-over-year, a new company record.

    • Repurchased $130 million worth of common shares in Q1, exceeding the $100 million target.

    • Increased quarterly dividend by 12% to $0.48 per share.

    • Backlog conversion rate was 254%, significantly exceeding the long-term target of 175%-200%.

    • Maintained a sub-110 calendar day instruction schedule for the fourth straight quarter.

    Concerns

    5

    • Sales orders totaled 3,664, 5% below last year's Q1.

    • Home closing gross margin was 17.5%, down 400 bps year-over-year from 22%.

    • Diluted EPS of $0.82 a share, a 51% decrease year-over-year.

    • Average absorption pace declined to 3.6 from 4.4 in the prior year.

    • ASP on orders was $382,000, down 5% year-over-year due to increased incentives and geographic mix shift.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year community count growth
    5% to 10%
    high materiality
    High
    Full-year home closing volume and revenue
    at or within 5% of full year 2025 results
    high materiality
    Medium
    Q2 2026 total home closings
    3,650 and 3,900 units
    high materiality
    High
    Q2 2026 home closing revenue
    $1.37 billion to $1.47 billion
    high materiality
    High
    Q2 2026 home closing gross margin
    around 18%
    high materiality
    High
    Q2 2026 effective tax rate
    24.5% to 25%
    medium materiality
    High
    Q2 2026 diluted EPS
    $1.18 to $1.46
    high materiality
    High
    Long-term gross margin target
    22.5% to 23.5%
    high materiality
    Medium
    Long-term SG&A target
    9.5%
    medium materiality
    Medium
    Long-term backlog conversion target
    175% to 200%
    medium materiality
    High
    Full-year land acquisition and development spend
    up to $2 billion
    high materiality
    High
    Programmatic share buyback
    $100 million
    high materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    West Region
    Includes California, Colorado, and Utah. These markets are challenged by affordability pressure, high competition, sticky land prices, and a high regulatory environment. The company is intentionally trying to reallocate a significant part of its business away from this region long term, willing to run it at a slower pace to maximize margin of the land book.
    Orders: down YoY (fifth consecutive quarter)Community count: mid-80s
    		————

    Operational metrics

    41
    Sales orders
    3,664down 5% YoY
    Q1 FY26

    Total sales orders for the quarter, impacted by slower absorption pace.

    Community count
    345up 19% YoY
    Q1 FY26

    Record active communities at quarter-end.

    Average absorption pace
    3.6vs 4.4 in Q1 FY25
    Q1 FY26

    Moderated pace to avoid further margin deterioration in certain markets.

    Cancellation rate
    11%slightly below historical average
    Q1 FY26

    Benefited from quick sale-to-close process.

    ASP on orders
    $382,000down 5% YoY
    Q1 FY26

    Average selling price on orders.

    Home closing revenue
    $1.1 billiondown 17% YoY
    Q1 FY26

    Total revenue from home closings.

    Home closing gross margin
    17.5%down 400 bps YoY
    Q1 FY26

    Gross margin on home closings.

    Real estate inventory impairment
    $2.4 millionvs no impairment in Q1 FY25
    Q1 FY26

    Impairment charges recognized in the quarter.

    Terminated land and walkaway charges
    $1.4 millionsame as Q1 FY25
    Q1 FY26

    Charges related to terminated land deals.

    Lost leverage impact on margin
    20
    Q1 FY26

    Impact from unanticipated higher closing revenue.

    Direct cost savings
    nearly 5%YoY per square foot
    Q1 FY26

    Achieved through extensive vendor negotiations.

    SG&A as % of home closing revenue
    11.8%vs 11.3% in Q1 FY25
    Q1 FY26

    SG&A ratio increased despite curtailing discretionary spend.

    Effective income tax rate
    23.7%vs 23.3% in Q1 FY25
    Q1 FY26

    Effective tax rate for the quarter.

    Diluted EPS
    $0.82down 51% YoY
    Q1 FY26

    Diluted earnings per share.

    Book value per share growth
    6%YoY
    Q1 FY26

    Increase in book value per share as of March 31, 2026.

    Cash balance
    $767 million
    Q1 FY26

    Cash on hand as of March 31, 2026.

    Net debt to cap
    17.4%
    Q1 FY26

    Net debt to capitalization ratio.

    Land spend
    $326 milliondown 30% YoY
    Q1 FY26

    Spend on land acquisition and development.

    Capital returned to shareholders
    $162 millionup from $76 million in Q1 FY25
    Q1 FY26

    Total capital returned through buybacks and dividends.

    Share buybacks
    $130 millionnearly 3x more than Q1 FY25
    Q1 FY26

    Amount spent on share repurchases.

    Remaining share repurchase authorization
    $384 million
    Q1 FY26

    Remaining amount authorized for share repurchases.

    Quarterly cash dividend
    $0.48up 12% YoY
    Q1 FY26

    Increased quarterly cash dividend.

    Total dividend paid
    $32 million
    Q1 FY26

    Total cash dividend paid in the quarter.

    Capital returned as % of earnings
    295%
    Q1 FY26

    Ratio of capital returned to quarterly earnings.

    Net new lots under control
    almost 400vs nearly 2,200 in Q1 FY25
    Q1 FY26

    Net new lots added to control.

    Total lots owned or controlled
    75,500
    Q1 FY26

    Total land inventory.

    Lot supply
    5.2
    Q1 FY26

    Supply of lots based on recent closing activity.

    Lots undergoing diligence
    14,600
    Q1 FY26

    Potential additional 1-year supply in the pipeline.

    Owned lots as % of total
    70%vs 62% prior year
    Q1 FY26

    Percentage of total lot inventory that is owned.

    Option lots as % of total
    30%vs 38% prior year
    Q1 FY26

    Percentage of total lot inventory that is optioned, target around 40%.

    Instruction schedule (cycle time)
    sub-110fourth straight quarter
    Q1 FY26

    Maintained fast construction cycle times.

    Starts
    approx 2,500down 30% YoY
    Q1 FY26

    Moderated starts to align with sales pace and manage inventory.

    Backlog conversion rate
    254%
    Q1 FY26

    High backlog conversion rate, with nearly 70% of Q1 closings also sold during the quarter.

    Ending backlog
    approx 1,900down 7% YoY
    Q1 FY26

    Total homes in backlog at quarter-end.

    Spec and backlog units
    approx 6,600down 25% YoY
    Q1 FY26

    Combined total of spec and backlog units.

    Spec homes
    approx 4,700down 30% YoY
    Q1 FY26

    Total spec homes at quarter-end. Transcription note: The transcript stated 'down 90% sequentially from Q4', which is an ASR error. The correct calculation from 6,800 in Q4 to 4,700 in Q1 is a 30% sequential decrease.

    Specs per store
    14vs 23 in Q1 FY25
    Q1 FY26

    Spec homes per active community, appropriately aligned with current absorption targets.

    Supply of specs
    under 4
    Q1 FY26

    Supply of spec homes, at the low end of the target due to slower demand and improved cycle times.

    Completed specs as % of total specs
    46%down from 50% in Q4 FY25
    Q1 FY26

    Ratio of completed spec homes to total spec homes, still above target.

    Co-broke percentages
    low 90%
    Q1 FY26

    Percentage of sales involving external brokers, indicating strong realtor relationships.

    External broker commission cost
    relatively flatYoY
    Q1 FY26

    Commission costs as a percentage of revenue remained stable.

    Risks & headwinds

    10
    Impact of severe winter stormEarly Q1 2026

    Sales activities halted for several days in many markets

    Mitigation: Not explicitly stated, but implies efforts to catch up on lost sales days.

    Geopolitical events and macroeconomic pressuresEnd of February 2026 onwards

    Military operations in Iran increased interest rates, gas prices, and inflation

    Mitigation: Increased use of incentives to capture demand; focus on strong balance sheet and capital allocation.

    Consumer hesitation and need for incentivesCurrent market conditions

    Potential homebuyers hesitate, requiring higher-than-anticipated use of incentives; ASP on orders down 5% YoY

    Mitigation: Offering 60-day closing guarantee, move-in ready homes, strong realtor engagement; moderating pace to avoid margin deterioration.

    Lumber cost inflationQ1 FY26 onwards

    Lumber costs have started to trend higher this quarter

    Mitigation: Not anticipated to have a notable material gross margin impact this year.

    Oil price inflation from Iron conflictOngoing

    Potential long-term inflationary impact on oil prices

    Mitigation: Monitoring for potential impact; not anticipated to have a notable material gross margin impact this year.

    SG&A deleverage on lower revenueQ1 FY26

    SG&A as a percentage of home closing revenue increased to 11.8% from 11.3% YoY

    Mitigation: Curtailing discretionary spend; investing in back-office automation for long-term efficiency.

    Impact of prior land basis on marginsThroughout 2026

    Land basis from 2022 through 2024 will continue to negatively impact margins

    Mitigation: Expect some margin relief at tail end of 2027 from lower land basis and development costs.

    Fragile consumer psychologyCurrent

    Consumer psychology remains fragile and can be driven by daily news announcements

    Mitigation: Believes pent-up demand will materialize once macroeconomic conditions stabilize.

    Tougher selling environments in specific marketsQ1 FY26

    Austin, parts of Florida, and Charlotte continue to be tougher selling environments

    Mitigation: Moderating pace to avoid further margin deterioration and optimize land value.

    Challenged West Region performanceQ1 FY26

    West region orders down YoY for fifth consecutive quarter; community count stuck at mid-80s

    Mitigation: Intentionally trying to reallocate business to the East; running West region at a slower pace to maximize margin of the land book.

    What to watch in Q2 FY26

    5

    Community Count Growth

    Next quarter (Q2 FY26)
    Current345 active communities (Q1 FY26)
    TargetContinued growth towards 5%-10% YoY for FY26

    Why it matters

    Key driver for volume and top-line results, competitive advantage.

    We reiterate our expectations of 5% to 10% full year community count growth for 2026.

    Q&A highlights

    6

    Are lower spec counts industry-wide helping to alleviate margin pressure, and do you expect this to support margins moving forward?

    Management believes lower finished inventory across the industry, driven by builders pivoting away from carrying as much or moving to BPO models, is creating a better environment for margin stability, especially for Meritage's spec strategy.

    “I think we saw across all of our markets, less finished inventory that we were competing with and we're optimistic as we move throughout the year, that creates a better environment for margin stability on a go-forward basis, specifically for our strategy where we are focused on continuing to build stacks and carry them to a later stage.”

    asked by Trevor Allinson · answered by Phillippe Lord

    2 min read7 chapters

    Detailed Narrative

    01

    Market Conditions and Consumer Behavior

    The quarter began with optimism but was impacted by a severe winter storm and geopolitical events, leading to increased interest rates, gas prices, and inflation. This negatively affected consumer confidence, causing potential homebuyers to hesitate and necessitating higher incentives. Despite these challenges, the company believes long-term fundamentals for the housing industry remain strong, supported by favorable demographics and an undersupply of affordable homes.

    02

    Community Count and Growth Strategy

    Meritage achieved a record 345 active communities by March 31, 2026, up 19% year-over-year. The company expects 5% to 10% full-year community count growth for 2026, driving volume and top-line results. This increased store count is seen as a competitive advantage for market share gains when demand normalizes, with a focus on leveraging fixed costs at 4 net sales per month.

    03

    Operational Efficiency and Inventory Management

    The company maintained a sub-110 calendar day instruction schedule for the fourth consecutive quarter, enabling faster cycle times. Starts were moderated to approximately 2,500 homes in Q1, 30% less than last year, to align with sales pace and work through inventory. The backlog conversion rate was 254%, significantly above the long-term target, leading to a decline in ending backlog to 1,900 homes.

    04

    Financial Performance and Margin Pressures

    Home closing revenue was $1.1 billion, down 17% YoY, driven by lower closing volume and a 5% decrease in ASP. Gross margin compressed to 17.5% due to increased incentives, higher lot costs, and lost leverage, partially offset by improved direct costs. SG&A as a percentage of revenue increased to 11.8% due to lower revenue, despite reduced discretionary spend.

    05

    Capital Allocation and Balance Sheet Strength

    Meritage maintains a strong balance sheet with $767 million cash and a net debt to cap of 17.4%. The company returned $162 million to shareholders in Q1, including $130 million in share buybacks (repurchasing 1.8 million shares at a 6% discount to book value) and a 12% dividend increase to $0.48 per share. Land spend was down 30% YoY, totaling $326 million.

    06

    Land Strategy and Off-Balance Sheet Financing

    The company owned or controlled 75,500 lots, equating to a 5.2-year supply. While 70% of total lot inventory is owned, 30% is optioned, with a target of 40% option lots. Meritage is selectively using off-balance sheet structures, with about 10% of total land supply with traditional land bankers, ensuring no cross-collateralization and focusing on deals with sufficient margin.

    07

    Technology and AI Initiatives

    Meritage is investing in technology and AI for back-office automation to improve efficiency and accuracy, aiming to reduce manual data entry and streamline processes. These initiatives are expected to contribute to achieving the long-term SG&A target of 9.5% and will also include customer-facing solutions.

    AI-generated summary of the company’s earnings call. Not investment advice.