Meritage Homes Q1 Earnings Call Highlights

Key Points

• Meritage reported Q1 sales orders of 3,664 (down 5%), home closings of 2,967 and home closing revenue of $1.1 billion, while home closing gross margin fell to 17.5% (down 400 bps) and diluted EPS was $0.82 as weather disruptions, geopolitical-driven rate/inflation pressure and higher incentives weighed on results.
• The company is growing by footprint rather than absorption, ending the quarter with a record 345 active communities (up 19% YoY) while average absorption slid to 3.0 from 4.4 and ASP on orders fell 5% to $382,000; Meritage also cut spec inventory to ~4,700 units (down 30% YoY) and posted a 254% backlog conversion rate.
• Management returned capital aggressively—repurchasing $130 million in Q1 and raising the dividend 12%—finished with $767 million cash and 17.4% net debt-to-capital, and reiterated full-year 2026 closings/revenue expected to be at or within 5% of 2025 while issuing Q2 guidance for closings, revenue, margin and EPS.

Meritage Homes NYSE: MTH executives said first-quarter 2026 results were pressured by weather disruptions and a volatile macro backdrop that dampened consumer confidence, while the company leaned on higher community count, fast cycle times, and incentives to maintain sales activity.

Market backdrop and first-quarter overview

Executive Chairman Steven Hilton said the company entered 2026 “cautiously optimistic” that lower interest rates and pent-up demand would support homebuilder performance, but noted that “a severe winter storm” halted sales activity for several days in multiple markets early in the year. He added that military operations in Iran that began near the end of February contributed to higher interest rates, higher gas prices, and higher inflation, which “negatively impacted consumer confidence.”

Despite the headwinds, Hilton said Meritage generated Q1 2026 sales orders of 3,664, down 5% from the year-ago period, as slower absorption was “almost fully offset” by higher community count. The company delivered 2,967 homes and reported home closing revenue of $1.1 billion. Hilton also highlighted a backlog conversion rate of 254%, supported by the company’s 60-Day Closing Guarantee, available completed spec inventory, and improved cycle times.

However, Hilton said a slower start to the spring selling season and increased incentive use weighed on profitability, resulting in home closing gross margin of 17.5% and diluted earnings per share of $0.82. He added that book value per share increased 6% year-over-year as of March 31, 2026.

Community growth offsets weaker absorption; incentives remain key

CEO Phillippe Lord emphasized that Meritage set another company record with 345 active communities at quarter-end, up 19% year-over-year from 290 and up 3% sequentially from 336. He said the company expects near-term volume and top-line performance to be driven “by increased community count, not higher per-store absorptions,” and reiterated a full-year expectation of 5% to 10% community count growth in 2026. During the quarter, Meritage opened 40 new communities across its regions.

Lord said Q1 orders declined year-over-year primarily due to an 18% drop in average absorption pace, which was “mostly offset” by a 17% rise in average community count. Average absorption pace was 3.0 compared with 4.4 in the prior year. He said the company did not push for four net sales per month in markets where dynamics did not support it, seeking a balance between “velocity and margin.”

Average selling price (ASP) on orders was $382,000, down 5% from the prior year, driven by “increased use of incentives and discounts” and a geographic mix shift “from the higher ASP west region into lower ASP east region,” according to Lord. He said March improved from a slow start, though the spring season was not as strong as typical, and April “is feeling the same as March.”

On regional trends, Lord said all markets required additional incentives, but described Dallas, Houston, and Phoenix as relatively more elastic—where incremental volume was achievable with “only small incremental incentives.” He called Austin, parts of Florida, and Charlotte “tougher selling environments.”

Specs, starts, and cycle times: managing inventory in a spec-focused model

Meritage continued to adjust its construction cadence and inventory. Lord said the company maintained a sub-110 calendar day construction schedule for the fourth consecutive quarter. Starts were moderated to roughly 2,500 homes, down 30% from Q1 2025 and 6% from Q4, reflecting faster cycle times and a desire to work through inventory in some locations. He said starts should align more closely with sales expectations as the year progresses.

Lord said nearly 70% of Q1 closings were also sold during the quarter, contributing to the 254% backlog conversion rate. Ending backlog declined about 7% year-over-year to approximately 1,900 homes at March 31, 2026, from roughly 2,000 a year earlier. Meritage reiterated a long-term backlog conversion target of 175% to 200% as it expects to carry fewer finished specs over time.

He also said combined spec and backlog units totaled about 6,600 at March 31, 2026, down 25% from about 8,800 a year earlier. Spec homes ended at approximately 4,700, down 30% year-over-year and 19% sequentially. Specs per store were 14, the lowest level since early 2022, translating to “a little under four months supply,” intentionally at the low end of a four- to six-month target. Completed specs as a share of total specs were 46% at quarter-end, down from 50% in Q4 2025 but still above the company’s target of about one-third; Lord said the company would focus on bringing that ratio down in Q2.

In the Q&A, Lord told Wolfe Research that a broader industry pullback in finished inventory appeared to be reducing competitive pressure and could support “margin stability” as the year progresses, which he said was constructive for Meritage’s continued emphasis on specs carried to a later stage.

Margins, costs, and land: near-term pressure, long-term targets unchanged

CFO Hilla Sferruzza said Q1 2026 home closing revenue of $1.1 billion was down 17% year-over-year due to a 13% decline in closing volume and a 5% decrease in ASP on closings. She said the quarter’s events were “already mostly reflected” in the P&L because of the high share of same-quarter sales and closings.

Home closing gross margin was 17.5%, down 400 basis points from 22% a year earlier, which Sferruzza attributed to increased incentives, higher lot costs, and “lost leverage,” partially offset by improved direct costs, lower compensation expense, and faster cycle times. The quarter included $2.4 million in real estate inventory impairments and $1.4 million in terminated land deal walkaway charges, compared with no impairments and $1.4 million of walkaway charges in the prior-year quarter.

Sferruzza said Meritage’s land basis is “primarily comprised of higher-cost land vintages from 2022 through 2024” and is expected to pressure margins in 2026. She said the company expects “some margin relief” to begin at the “tail end of 2027” as newer land and development costs improve. She also noted direct cost savings of nearly 5% per square foot year-over-year from vendor negotiations, while warning that lumber costs had begun to trend higher and that the company was monitoring potential longer-term inflationary impacts on oil prices tied to the Iran conflict.

Meritage maintained its long-term gross margin target of 22.5% to 23.5% “in a normalized market,” which management said assumes stabilized incentives and interest rates near historical averages. In response to Evercore ISI, Lord said reaching that target is “a lot easier” at four net sales per month given operating efficiency and overhead leverage, though he acknowledged there could be a path at somewhat lower absorption if direct margin performance improved.

Capital allocation, balance sheet, and updated guidance

Management repeatedly emphasized balance sheet strength and shareholder returns. Lord said Meritage repurchased $130 million of common shares in Q1, above the company’s previously announced $100 million per quarter programmatic buyback target for 2026. He also said the quarterly dividend was increased 12% to $0.48 per share.

Sferruzza said the company ended the quarter with $767 million in cash, no borrowings under its credit facility, and net debt-to-capital of 17.4%, with a stated ceiling in the “mid-20% range.” Land spend totaled $326 million in Q1, down 30% year-over-year, as the company was more selective on land and development timing; it reiterated forecasted 2026 land acquisition and development spend of up to $2 billion.

She said Meritage returned $162 million to shareholders via buybacks and dividends during the quarter, equal to 295% of quarterly earnings. The company repurchased more than 1.8 million shares, or 2.7% of shares outstanding at the beginning of the year, at an average 6% discount to book value. Sferruzza said $384 million remained under the repurchase program and reiterated plans to buy back $100 million in shares in each remaining quarter of 2026, “assuming no additional material market shifts.”

On land supply, Sferruzza said Meritage owned or controlled about 75,500 lots at March 31, equating to 5.2 years of supply based on the last 12 months’ closings, with about 14,600 lots in diligence as additional pipeline. She said the company’s inventory mix was about 70% owned and 30% optioned at quarter-end, compared to 62% owned and 38% optioned a year earlier, as it moves “slowly and cautiously” toward a roughly 40% option-lot target depending on deal economics. In the Q&A, Sferruzza said about 38% of total inventory controlled is “off book,” with about a third of that tied to land bankers, and emphasized the company does not cross-collateralize deals to preserve the ability to walk away, with deposit and ancillary costs as the primary risk.

Looking ahead, Sferruzza said Meritage updated its full-year 2026 guidance, expecting home closing volume and revenue to be “at or within 5%” of full-year 2025 results. For Q2 2026, the company projected:

• Home closings: 3,650 to 3,900 units
• Home closing revenue: $1.37 billion to $1.47 billion
• Home closing gross margin: around 18%
• Effective tax rate: 24.5% to 25%
• Diluted EPS: $1.18 to $1.46

In closing remarks and Q&A discussion, management said buyer sentiment remained fragile and influenced by daily news flow, while noting that mortgage rates “six or slightly below six” appeared to be a threshold where “buyer psychology” improves, according to Lord.

About Meritage Homes NYSE: MTH

Meritage Homes Corporation is a national homebuilder and residential developer headquartered in Scottsdale, Arizona. Founded in 1985 as Winchester Homes and later rebranded to Meritage Homes, the company specializes in designing, constructing and selling single‐family detached and attached homes. With a focus on energy efficiency and sustainable building practices, Meritage Homes markets its properties under the GreenSmart program, which integrates high‐performance features aimed at reducing long‐term energy and water consumption for homebuyers.

The company's core activities encompass land acquisition, residential community planning, home design, construction management and real estate sales.

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