M/I Homes Q2 Earnings Call Highlights

Key Points

• Demand remained resilient: M/I Homes reported record second-quarter new contracts, with home sales up 15% year over year to 2,387 despite higher mortgage rates and economic uncertainty. The average sales pace improved to 3.4 homes per community, while the cancellation rate was 8%.
• Profitability declined: Revenue fell 9% to $1.1 billion, pretax income dropped 35% to $105 million, and diluted EPS decreased to $3.02 from $4.42. Gross margin was 22.1%, pressured by inventory charges and continued reliance on mortgage-rate buydowns.
• Balance sheet remained strong: The company ended the quarter with $736 million in cash, no revolver borrowings, an 18% debt-to-capital ratio and $3.2 billion in equity. M/I Homes also repurchased $50 million of stock and maintained a land position exceeding 49,000 owned and controlled lots.

M/I Homes NYSE: MHO reported record second-quarter new contracts as demand increased despite higher mortgage rates, economic uncertainty and what management described as a choppy housing market. The homebuilder sold 2,387 homes during the quarter, a 15% increase from a year earlier, while first-half sales rose 8% to 4,737 homes.

“Despite continued challenges in the broader economy, choppy demand, economic uncertainty, rising interest rates, and the impact of the conflict in the Middle East, we are very proud of our results,” Chairman, President and CEO Bob Schottenstein said during the company’s earnings call.

Second-quarter pretax income totaled $105 million, down 35% from the prior-year period, while pretax income as a percentage of revenue was 10%. Revenue declined 9% to $1.1 billion as deliveries fell and the company’s average sale price decreased. Diluted earnings per share fell to $3.02 from $4.42 a year earlier.

Sales Growth and Product Mix

M/I Homes said its monthly sales pace averaged 3.4 homes per community in the second quarter, compared with 3.0 homes per community a year earlier. Its cancellation rate was 8%, and 50% of second-quarter sales were to first-time buyers.

The company ended the quarter with 234 active communities, unchanged from a year earlier. It opened 27 communities and closed 23 during the quarter, and management expects average community count in 2026 to rise about 5% from the prior year.

Sales growth occurred across both major regions. New contracts increased 16% in the northern region and 14% in the southern region, with the Carolinas posting the largest increase. Schottenstein identified Columbus, Chicago, Minneapolis, Raleigh and Charlotte as leading divisions during the quarter. He said the Midwest performed strongly, Texas sales improved, and Florida sales were also higher.

At the same time, deliveries declined 6% to 2,206 homes. Northern-region deliveries fell 8% and represented 40% of the total, while southern-region deliveries declined 5% and accounted for the remaining 60%.

The company saw a modest shift toward move-up buyers. Its Smart Series homes, the company’s most affordable product line and one aimed primarily at first-time buyers, represented 43% of sales, compared with 52% a year earlier. Schottenstein said the change reflected both somewhat stronger demand for move-up homes and the company’s efforts over the past 18 to 24 months to identify more move-up opportunities in select markets.

“Some of the more high-priced or move-up land opportunities penciled better in terms of underwriting,” Schottenstein said, adding that certain smaller and infill sites could support attractive returns.

Margins, Incentives and Inventory

Second-quarter gross margin was 22.1%, including $4 million of inventory charges. Excluding those charges, gross margin was 22.5%, slightly above the first-quarter level. Chief Financial Officer Phil Creek said construction costs declined modestly from the first quarter and cycle times improved by several days.

Management said mortgage-rate buydowns remained its primary sales incentive. Schottenstein said the company expects to continue promoting rate buydowns given the current interest-rate environment, while emphasizing that location and product quality remain the main drivers of sales performance.

“If it weren’t for mortgage rate buydowns industry-wide … the sales environment would be bleak,” Schottenstein said. “The primary driver for our sales is our well-located communities.”

Approximately 78% of second-quarter sales were spec homes, consistent with the first quarter. Of the homes delivered during the quarter, 42% were inventory homes that were both sold and delivered in the same period. Management said margins on to-be-built homes are generally higher than spec-home margins, although the difference varies by market.

M/I Homes ended the quarter with 510 completed inventory homes and 2,839 total inventory homes, compared with 586 completed homes and 2,726 total inventory homes a year earlier. Creek said improved construction cycle times have helped the company manage spec inventory levels.

SG&A expense increased 3% from a year ago and represented 12.6% of revenue, versus 11.3% in the prior-year quarter. Creek attributed the increase primarily to new community openings, a 3% increase in headcount, and higher spending on sales, advertising and customer leads.

Mortgage Operations and Market Conditions

M/I Financial generated pretax income of $14.4 million, nearly unchanged from $14.5 million in the prior-year quarter. Revenue rose 3% to $32.3 million, helped by a higher average loan amount and slightly higher margins on loans sold, partially offset by fewer loan originations.

• Mortgage operations captured a record 96% of the company’s homebuilding business, up from 92% a year earlier.
• Loans originated declined 3% to 1,817, while loan-sale volume increased 6%.
• The average mortgage amount rose to $405,000 from $403,000.
• Average buyer credit scores were 748, and average down payments were approximately 15%.

Schottenstein said the company’s government-backed spec-home mortgage program was offering rates slightly below 5% for 30-year fixed loans, while conventional spec and longer-term rate-lock programs were slightly above 5%.

Management said it expects solid performance in Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis, Orlando, Dallas, Charlotte and Raleigh. Tampa and Sarasota remain more challenged by local macroeconomic conditions, while Austin is improving after a weaker period, according to Schottenstein. The newer Nashville and Fort Myers/Naples operations are gaining traction but currently weigh on earnings as they build scale.

Land Position and Balance Sheet

The company owned approximately 23,500 lots at quarter-end, representing about a two-and-a-half-year supply, and controlled another 25,700 lots through option contracts. Its total owned and controlled lot position exceeded 49,000 lots, or roughly a five-year supply.

M/I Homes spent $131 million on land purchases and $155 million on land development during the quarter. Unsold land investment totaled $1.9 billion, up from $1.7 billion a year earlier. Management said it is seeing more finished-lot opportunities in many markets from sellers, other builders and land bankers.

The company ended the quarter with $736 million in cash and no borrowings under its $900 million unsecured revolving credit facility. Equity reached a record $3.2 billion, and book value per share rose $11 from a year earlier to $128. Its debt-to-capital ratio was 18%, while net debt-to-capital was negative 1%.

M/I Homes repurchased $50 million of stock during the quarter and had $120 million remaining under its board authorization. Since 2022, the company has repurchased 19% of its outstanding shares.

Schottenstein said the company remains confident in long-term housing fundamentals but is focused on maintaining balance-sheet strength amid uncertainty over interest rates, consumer confidence and broader economic conditions.

About M/I Homes (NYSE:MHO)

M/I Homes, Inc is a publicly traded residential homebuilder founded in 1976 and headquartered in Columbus, Ohio. The company designs, markets and constructs single-family homes and townhome communities across the United States, offering a range of floor plans with customizable design options. Its product portfolio includes starter homes, move-up homes and luxury models, as well as multi-family residences in urban and suburban infill locations.

In addition to its core homebuilding operations, M/I Homes provides mortgage, title and closing services through its in-house affiliate M/I Financial Services.

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