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MH

M/I HOMES, INC. (MHO)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered record second-quarter revenue ($1.163B) and homes delivered (2,348), but profitability compressed: gross margin 24.7% (down ~320 bps YoY) and diluted EPS $4.42 (down 14% YoY), while pre-tax margin remained solid at 14% .
  • Against S&P Global consensus, revenue was a clear beat (~$1.163B vs $1.116B*) while EPS was essentially in-line ($4.42 vs $4.43*); EBITDA missed modestly ($156.7M actual vs ~$162.0M*). Bold catalysts: revenue beat despite choppy demand; EPS in-line amid buy-downs; margin commentary signaling stabilization rather than further sharp declines (*Values retrieved from S&P Global).
  • Backlog fell sharply YoY (units -25% to 2,577; sales value -22% to $1.43B) and cancellation rate rose to 13%, reflecting choppy conditions and heavier spec mix; however, community count reached a record 234 and management reiterated ~5% average community growth for 2025 .
  • Balance sheet remains a key support: $800M cash, zero borrowings on the $650M revolver, homebuilding debt-to-capital 18%, net debt-to-capital negative 3%; company repurchased $50M of stock in Q2, with $150M remaining authorization .
  • Near-term stock narrative: revenue resilience and balance-sheet strength vs. backlog compression/margin pressure; management tone constructive and confident on long-term fundamentals, with rate buy-downs sustaining pace while margin stabilization appears likely .

What Went Well and What Went Wrong

What Went Well

  • Record Q2 revenue ($1.163B) and homes delivered (2,348); average closing price held at $479K, with strong ROE of 17% and pre-tax margin of 14% .
  • Balance sheet strength: $800M cash, zero revolver borrowings, debt-to-capital 18%, net debt-to-capital -3%; CFO emphasized maturities well-laddered and interest rates below 5% on public debt .
  • Management quote: “We delivered solid second quarter results… strong gross margins of 25%, 14% pre-tax income and 17% return on equity,” highlighting operational resilience in a choppy demand environment .

What Went Wrong

  • Profitability compressed: diluted EPS $4.42 (-14% YoY), gross margin 24.7% (-320 bps YoY; -120 bps vs Q1), EBITDA down YoY; SG&A rose with growth in communities/headcount .
  • Demand softness: new contracts down 8% YoY to 2,078; backlog units -25% YoY to 2,577 and sales value -22% to $1.43B; cancellation rate increased to 13% vs 10% last year .
  • Margin headwinds: continued use of mortgage rate buy-downs and spec sales (≈70% of sales mix) weigh on margins; management flagged limited pricing power and potential tariff uncertainty (lumber from Canada 20–30%) .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$1,205.3 $976.1 $1,162.6
Gross Margin ($USD Millions)$296.8 $252.8 $286.6
Gross Margin (%)24.6% (calc from )25.9% 24.7%
Operating Income ($USD Millions)$164.0 $140.9 $155.7
Pre-tax Income ($USD Millions)$170.6 $146.1 $160.1
Net Income ($USD Millions)$133.5 $111.2 $121.2
Diluted EPS ($)$4.71 $3.98 $4.42
Adjusted EBITDA ($USD Millions)$183.1 $154.0 $169.4

Consensus vs Actual (Q2 2025):

MetricConsensusActualSurprise
Revenue ($USD)$1,115,266,670*$1,162,592,000 +$47.3M (~+4.2%)*
Diluted EPS ($)$4.4333*$4.42 -$0.013 (~-0.3%)*
EBITDA ($USD)$162,000,000*$156,724,000*-$5.3M (~-3.3%)*
Values retrieved from S&P Global.

Segment/Region Breakdown (Q2 2025):

RegionNew Contracts (Q2)New Contracts (Q2 LY)Change YoYDeliveries (Q2)Deliveries (Q2 LY)Change YoY
Northern873 1,002 -13% 967 951 +2%
Southern1,205 1,253 -4% 1,381 1,273 +8%
Total2,078 2,255 -8% 2,348 2,224 +6%

Key KPIs

KPIQ4 2024Q1 2025Q2 2025
Backlog Units2,531 2,847 2,577
Backlog Sales Value ($USD Millions)$1,400 $1,559 $1,425
Avg Backlog ASP ($)$553,000 $548,000 $553,000
Cancellation Rate14% (Q4) 10% (Q1) 13% (Q2)
Avg Closing Price ($)$490,000 $476,000 $479,000
Communities (end of period)220 226 234
Cash ($USD Millions)$821.6 $776.4 $800.4
Homebuilding Debt/Capital19% 19% 18%
Net Debt/Capital-5% (FY end) -3% -3%
Share Repurchases ($USD Millions)$50 (Q4) $50 (Q1) $50 (Q2)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average Community Count GrowthFY 2025“Grow average community count by ~5%” (Q1) “On track to grow average community count by ~5%” Maintained
Margin OutlookFY 2025Gross margins likely below FY2024 (26.6%), continued pressure due to rate buy-downs Margins stabilizing in mid-20s; could drift to ~23–24% but not another 100–300 bps step-down; continued use of buy-downs Maintained cautious tone
Tax RateNear term~24% effective tax rate (Q1) 24.3% effective rate in Q2; no forward change indicated Maintained
Share RepurchasesOngoing$50M per quarter cadence under authorization Repurchased $50M; $150M authorization remaining Maintained cadence
LiquidityPost-Q2$650M revolver, zero drawn (Q2) Subsequent: revolver amended to $900M, extended to 2030 (no borrowings) Raised (post-Q2 event)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Demand & OrdersQ1: Spring season “just okay”; new contracts -10% YoY; monthly progression: Jan -20%, Feb -10%, Mar -2% Q2: New contracts -8% YoY; monthly: Apr -12%, May -12%, Jun +1%; pace ≈3 homes/community Stabilizing late in quarter; still choppy
Margins & IncentivesQ1: Gross margin 25.9%; margin pressure likely through 2025 due to rate buy-downs; limited pricing power Q2: Gross margin 24.7%; management expects stabilization in mid-20s; continued buy-downs, spec mix ~70% Gradual normalization/stabilization
Spec StrategyQ1: ≈65% spec sales; specs ~150–200 bps lower margin vs to-be-built Q2: ≈70% specs; 36% of deliveries sold-and-closed within quarter; ~3 completed specs/community Elevated spec to support pace
Regional TrendsQ1: Midwest strong; Tampa softer but improving; Dallas/Houston good, Austin in reset Q2: Midwest slightly outperform Carolinas; Orlando strong; Tampa/Sarasota softer but improving; Dallas/Houston softer; Austin recovering Mixed by market; gradual improvement in select FL
Tariffs/Supply ChainQ1: Sticks & bricks flat/lower; tariff impact not yet visible Q2: Lumber from Canada ~20–30%; potential tariff risk acknowledged, no material impact yet Watch for late-year impacts
SG&A/FootprintQ1: Opened 27 communities; SG&A 11.5% of revenue Q2: Opened 23; SG&A 11.3% of revenue; average 2025 community count +5% YoY Operating leverage challenged by growth

Management Commentary

  • CEO: “Record second quarter revenue, record second quarter homes delivered… 25% gross margins, 14% pretax income, and a 17% return on equity” .
  • CEO on macro/channels: “We continue to face challenging and choppy conditions, primarily due to higher interest rates… we have strategically and effectively used mortgage rate buy downs to drive traffic and incent sales” .
  • CFO: “Our second quarter gross margin was 24.7%, down 320 basis points year over year and down 120 basis points from our first quarter… SG&A 11.3% of revenue… effective tax rate 24.3%” .
  • CEO on balance sheet: “All-time record $3.1 billion of equity… zero borrowings under our $650 million unsecured revolving credit facility and $800 million of cash… debt to capital 18%, net debt to capital -3%” .
  • CEO on margins outlook: “Margins are starting to level off… may get a little bit lower… don’t see another 100–300 bps drop… buy-downs will continue; tariffs risk so far minimal” .

Q&A Highlights

  • Margin stability: Management expects margins to stabilize in the mid-20s, with buy-downs continuing; sees limited probability of another large step-down; tariffs risk acknowledged but minimal impact so far .
  • Spec strategy and incentives: Roughly 70% specs; 36% of Q2 deliveries were sold-and-closed in-quarter; primary incentive remains mortgage rate buy-downs rather than price cuts, protecting backlog integrity .
  • Regional performance: Midwest slightly outperforming; Orlando strong; Tampa/Sarasota softer but improving; Dallas/Houston softer; Austin recovering; management remains bullish on FL/TX long term .
  • SG&A and footprint: Continued community openings (23 in Q2; 50 in H1), higher SG&A with store count and headcount; average 2025 community count +5% expected .
  • Backlog/mortgage mix: Backlog margin roughly similar to Q1 with slight pressure; conventional vs FHA/VA mix shifting toward government loans; company capturing ~92% of its mortgage business .

Estimates Context

  • Revenue beat: Actual ~$1.163B vs consensus ~$1.115B*; reflects strong deliveries and effective buy-down strategy despite choppy demand; positive revenue delta should support near-term estimate revisions upward on top line (*Values retrieved from S&P Global).
  • EPS in-line: Actual $4.42 vs consensus ~$4.4333*; margin pressure from buy-downs/spec mix largely offset by volume; limited EPS revision risk near-term (*Values retrieved from S&P Global).
  • EBITDA miss: Actual ~$156.7M vs ~$162.0M*; aligns with gross margin compression; models may trim near-term EBITDA margins (*Values retrieved from S&P Global).

Key Takeaways for Investors

  • Revenue resilience with a clear top-line beat, but margin pressure persists; focus near-term on volume/mix and buy-down efficacy .
  • Backlog contracted materially YoY while cancellations rose; monitor order trends and monthly cadence for signs of sustained improvement (June +1% YoY orders) .
  • Elevated spec strategy (~70% of sales) is intentional to enable buy-downs and closing velocity; expect margins to stabilize in mid-20s as rate environment evolves .
  • Balance sheet strength and repurchases provide downside support; liquidity later increased post-quarter with revolver amendment to $900M (no borrowings) .
  • Regional mixed picture: Midwest solid; FL west coast/Tampa improving; TX softer but still attractive long term—position sizing by region could be a tactical lever .
  • Watch tariffs/lumber dynamics into late 2025; management sees minimal impact so far, but any cost pressure could affect margin trajectory .
  • Near-term trading setup: revenue beat and confident tone vs margin/backlog concerns; catalysts include order momentum, margin stabilization confirmation, and ongoing buybacks .

Appendix: Additional Q2 2025 Press Releases

  • Second Quarter Webcast announcement (June 13, 2025) .
  • Subsequent event (September 19, 2025): Revolver increased to $900M and extended to 2030; no borrowings outstanding .