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It has been about a month since the last earnings report for Meritage Homes (MTH). Shares have added about 5.4% in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Meritage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Meritage Homes Corporation (MTH) reported second-quarter 2025 results, wherein its earnings and total closing revenues topped the Zacks Consensus Estimate, but tumbled year over year. Revenues beat the consensus estimate for the 11th consecutive quarter.
The quarterly performance of the company was hindered by the ongoing housing market challenges due to a still-high mortgage rate and inflationary pressures, which are directly hitting homebuyers. Also, increased use of financing incentives and higher lot costs were added headwinds to the margins amid lower top-line growth.
However, given the ongoing market uncertainties, the company reduced its land acquisition and development spending to align with its capital allocation approach and maintain its shareholder value. Moving forward, MTH believes that with its speculative homebuilding strategy, alongside the favorable pricing, it will be able to improve its revenue visibility and gain profitability.
Earnings per share (EPS) of $2.04 surpassed the Zacks Consensus Estimate of $1.99 by 2.5%. The reported figure decreased 35% from the year-ago quarter’s EPS of $3.15. The decline was largely caused by lower gross margins as well as higher selling, general and administrative (SG&A) expenses.
Total revenues (including Total Closing revenues and Financial Services revenues) amounted to $1.63 billion, down 4% from $1.70 billion reported in the year-ago period.
Total Closing Revenues: Total closing revenues were $1.62 billion, which declined 4% from the prior-year quarter’s level but topped the consensus mark of $1.59 billion by 2.1%.
Under the Homebuilding umbrella, home closing revenues of $1.61 billion declined 5% from the prior-year quarter’s level due to lower average selling prices (ASPs). Land closing revenues were $0.83 million during the quarter.
Meritage Homes reported 4,170 units of homes closed, up 1% from the year-ago quarter. The ASP of homes closing declined 6% from a year ago to $387,000, which was primarily impacted by higher utilization of financing incentives this year.
Total home orders increased 3% from the prior year to 3,914 units. In dollars, home orders decreased 2% year-over-year to $1.55 billion. The average absorption pace was 4.3 per month in the quarter.
The quarter-end backlog totalled 1,748 units, down 36% year over year. The value of the backlog also decreased 37% year over year to $695.5 million.
Home closing gross margin contracted 480 basis points (bps) to 21.1%. The primary causes of the margin contraction were increasing lot costs, walk-away fees from cancelled land deals, and increased use of financing incentives. Improvements in direct cost savings helped to somewhat offset these pressures.
SG&A expenses, as a percentage of home closing revenues, were 10.2% compared to 9.3% in the prior-year quarter. This rise was mainly caused by as a result of reduced leverage of fixed costs on lower house closing revenue, alongside higher commissions, elevated start-up overhead costs of newer divisions, and increased maintenance costs associated with increased spec inventory.
Financial Services: The segment’s revenues rose 13% from the prior-year quarter’s level to $9.43 million.
At the end of June 30, 2025, cash and cash equivalents totalled $ 930.5 million, up from $651.6 million reported on Dec. 31, 2024. As of June 30, approximately 81,912 lots were owned or controlled by the company compared with about 70,822 lots a year ago.
Total debt-to-capital was 25.8%, compared with 20.6% in the year-ago period. Net debt to capital was 14.6% compared with 11.7% as of Dec. 31, 2024.
For the first six months of 2025, net cash used by operating activities was $28.9 million compared with $36 million of net cash used in operating activities in the year-ago comparable period.
During the six months of 2025, Meritage Homes paid cash dividends of $61 million to its shareholders. It repurchased 1,279,440 shares for $90 million. As of June 30, 2025, $219 million remained under the authorized share repurchase program.
The company continues to expect home closings between 3,600 and 3,900 homes, down from 3,942 closings in the year-ago quarter.
Home closing revenues are projected to be between $1.4 billion and $1.56 billion, down from $1.59 billion reported a year ago. Home closing gross margin is expected to be nearly 20%, down from 24.8% reported in the year-ago quarter.
Diluted EPS is expected to be between $1.51 and $1.86, down from $5.34 reported a year ago.
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -19.58% due to these changes.
At this time, Meritage has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock has a score of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Meritage has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Meritage is part of the Zacks Building Products - Home Builders industry. Over the past month, D.R. Horton (DHI), a stock from the same industry, has gained 11.9%. The company reported its results for the quarter ended June 2025 more than a month ago.
D.R. Horton reported revenues of $9.23 billion in the last reported quarter, representing a year-over-year change of -7.4%. EPS of $3.36 for the same period compares with $4.10 a year ago.
D.R. Horton is expected to post earnings of $3.28 per share for the current quarter, representing a year-over-year change of -16.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.1%.
D.R. Horton has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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This article originally published on Zacks Investment Research (zacks.com).
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