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MH

M/I HOMES, INC. (MHO)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue and EPS declined year over year and sequentially as gross margins compressed on higher sales incentives and an inventory charge; Q3 revenue was $1.132B and diluted EPS was $3.92 vs $1.143B and $5.10 in Q3’24, and vs $1.163B and $4.42 in Q2’25 . The quarter included $7.6M of inventory charges (≈60 bps of GM impact) and gross margin of 23.9% (down ~320 bps YoY) .
  • Orders softened (1,908, -6% YoY) with a 12% cancellation rate, while closings hit a Q3 record (2,296, +1% YoY); average closing price fell 2% YoY to $477K .
  • Consensus misses: revenue $1.132B vs $1.156B consensus* and EPS $3.92 vs $4.37 consensus* (2 estimates); margin headwinds from rate buy-downs and higher land costs were the primary drivers .*
  • Balance sheet strength and liquidity de-risk the outlook: Moody’s upgraded to Ba1, bank credit facility extended to 2030 and upsized to $900M (no borrowings), cash $734M, homebuilding debt-to-capital 18%, net debt-to-capital ~-1% .

What Went Well and What Went Wrong

  • What Went Well

    • Record Q3 deliveries (2,296, +1% YoY) and strong financial services performance (pre-tax $16.6M, +28% YoY; revenue $34.6M, +16% YoY) supported results despite demand volatility .
    • Liquidity and capital structure improved: credit facility extended to 2030/upsized to $900M (no borrowings), cash $734M; Moody’s upgrade to Ba1 .
    • Operational execution: cycle time improved ~10 days YoY and vs Q1; mortgage capture hit a record 93%; Smart Series mix ~52% aided affordability .

  • What Went Wrong

    • Margins compressed: Q3 GM 23.9% (down ~320 bps YoY), pre-tax margin 12% (down from 14% in Q2 and 15% in Q1); inventory charges of $7.6M reduced GM ~60 bps; underlying pressure from mortgage rate buy-downs and higher land costs .
    • Orders softness: new contracts 1,908 (-6% YoY), monthly pace 2.7 per community vs 3.2 last year; cancellations increased to 12% (from 10%) .
    • Backlog down sharply: 2,189 units (-31% YoY), $1.211B (-30% YoY); spec share elevated (75% of Q3 sales) and generally lower-margin than to-be-built .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.143 $0.976 $1.163 $1.132
Diluted EPS ($)$5.10 $3.98 $4.42 $3.92
Gross Margin ($USD Millions)$309.4 $252.8 $286.6 $270.1
Gross Margin (%)—25.9% 24.7% 23.9%
Pre-tax Margin (%)—15% 14% 12%
SG&A (% of Revenue)—11.5% 11.3% 11.9%
Effective Tax Rate (%)—24.0% 24.3% 23.8%

Estimate comparison (Q3 2025):

MetricQ3 2025 ActualQ3 2025 ConsensusSurprise
Revenue ($USD Billions)$1.132 $1.156*-$0.024B
Diluted EPS ($)$3.92 $4.37*-$0.45
  • Values marked with * retrieved from S&P Global.

Segments and backlog:

MetricNorthernSouthernTotal
New contracts (Q3 2025 units, YoY %)742 (-17%) 1,166 (+3%) 1,908 (-6%)
Deliveries (Q3 2025 units, YoY %)942 (-7%) 1,354 (+8%) 2,296 (+1%)
Backlog (9/30/25 units / $mm / ASP)1,081 / $609 / $563K 1,108 / $602 / $544K 2,189 / $1,211 / $553K

Key KPIs:

KPIQ3 2025Q2 2025Q1 2025
Average closing price ($K)$477 $479 $476
Cancellation rate12% 13% 10%
Monthly sales pace (homes/community)2.7 (vs 3.2 LY) 3.0 —
Community count (end of period)233 234 226
Mortgage capture rate93% 92% 92%
Spec share of sales75% 73% 65%
Cash and equivalents ($mm)$734 $800 $776
Homebuilding debt-to-capital18% 18% 19%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal revenue/EPS/margin guidanceFY/Q4 2025NoneNone; company does not guideMaintained (no formal guidance)
Community count (avg growth)FY 2025~5% growth~5% growth reiteratedMaintained
Pre-tax margin aspirationOngoingDouble-digit targetDouble-digit target reiteratedMaintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Mortgage rate buy-downs/incentivesEssential tool; 25.9% GM Q1 with buy-downs; aim to balance price/pace . Q2 GM 24.7%; primary incentive is buy-downs; little else .GM 23.9%; majority of GM decline due to buy-downs; inventory charge ~60 bps; expect margins near bottom .Persistent pressure but stabilizing; cost of buy-downs could ease if rates fall
Spec strategySpec 65% of sales; ~150–200 bps margin gap vs to-be-built .Spec 75% of sales; specs generally lower margin; 35% of Q3 deliveries from homes sold and closed in quarter .Elevated spec mix continuing
Regional trendsMidwest strong; Tampa soft but improving; Dallas/Houston solid; Austin recovering .Orlando stronger than Tampa/Sarasota; Texas margins down but still good; Midwest/Carolinas holding up .Mixed; Midwest/Carolinas relatively resilient
Costs/supply chain/tariffsSticks & bricks flat to slightly down; watching tariff impacts later in year .No tariff impact to date; construction costs ~flat; land costs higher; land development costs stabilizing .Materials stable; land a headwind
Liquidity/capitalQ2: $800M cash; no borrowings; line to 2026; buybacks $50M .Line extended to 2030 and upsized to $900M; $734M cash; Moody’s upgrade to Ba1; $50M buyback in Q3 .Stronger liquidity and credit profile
Demand toneQ1: “just okay” spring; choppy . Q2: choppy; seasonality observed .CEO: “C+” conditions; uneven month-to-month .Choppy/uneven persists

Management Commentary

  • “Despite the continued challenging housing market conditions and uneven demand environment, we had a solid quarter…pre-tax income representing 12% of revenue…and a strong return on equity of 16%.”
  • “Housing conditions are just okay. Certainly not great, but still just okay. Probably about a C+. We continue to incentivize sales and drive traffic, primarily with mortgage rate buy-downs.”
  • “Our third-quarter gross margin was 23.9%, down 320 basis points year over year, with 60 basis points of the decline due to $7.6 million of inventory charges.”
  • “We ended the third quarter with…book value per share of $120…zero borrowings under the $900 million unsecured line…debt-to-capital 18%, and net debt-to-capital of negative 1%.”
  • “We have seen no impact of tariffs to date…we’re going to continue…to use rate buy-downs…as long as it keeps working.”

Q&A Highlights

  • Incentives/margins: Majority of GM decline tied to buy-downs; absent inventory charges, GM down ~250 bps YoY; management believes margins are near a bottom, with risk biased to slight further pressure .
  • Regional divergence: Orlando outperforming Tampa/Sarasota; Texas margins down from peaks but still healthy; Midwest/Carolinas relatively resilient .
  • Selling costs/brokers: SG&A up 6% on higher community count/headcount; not increasing third-party broker co-op rates company-wide; careful on broker spend .
  • Specs/inventory: Spec share elevated and lower-margin; ~200 more completed specs YoY; managing specs to support buy-down-driven closings within 60 days .
  • Capital allocation: Continued programmatic buybacks ($50M in Q3); prioritize strong balance sheet and growth; open to M&A opportunistically but nothing imminent .

Estimates Context

  • Q3 2025 vs S&P Global consensus: Revenue $1.132B vs $1.156B* (miss); EPS $3.92 vs $4.37* (miss); only two estimates in each case, limiting robustness .*

  • Drivers vs consensus: GM compression from mortgage rate buy-downs, higher land costs, elevated spec mix, and $7.6M inventory charges weighed on profitability; financial services outperformed but not enough to offset .

  • Forward adjustments: With management indicating margins likely near a bottom and costs relatively stable ex-land, estimate revisions may focus on near-term margin run-rate and order pace into Q4 amid choppy demand .

  • Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Margins under pressure but stabilizing: GM fell to 23.9% on buy-downs and inventory charges; management views margins as near a bottom, with potential relief if buy-down costs ease alongside rates .
  • Demand remains choppy: Sales pace slowed to 2.7 per community (from 3.2 LY) with cancellations at 12%; despite this, Q3 deliveries set a record, highlighting operational throughput .
  • Elevated spec strategy is deliberate: High spec mix supports 45–60 day closings required for buy-down economics; implies continued near-term mix pressure on margins .
  • Strong balance sheet is a differentiator: $734M cash, no bank borrowings, extended/upsized credit facility, and Moody’s Ba1 upgrade provide flexibility through macro volatility .
  • Regional mix matters: Midwest/Carolinas resilient; Florida (particularly Tampa/Sarasota) and parts of Texas softer, but Orlando and several Midwest markets are standouts .
  • Capital returns ongoing: Consistent $50M quarterly buybacks in Q1–Q3; approach remains programmatic with growth and balance sheet prioritized .
  • Watch Q4 catalysts: Order trends, spec clearance, and evidence of margin stabilization; continued liquidity strength and any policy/tariff developments impacting costs .

Appendix: Additional Disclosures and Press Releases

  • Credit facility amendment (Sep 19, 2025): Borrowing capacity increased to $900M; maturity extended to Sept 2030; no borrowings outstanding at amendment .
  • Q3 press release (Oct 22, 2025): Full financial tables, including revenue $1.132B, EPS $3.92, inventory charge $7.6M, backlog $1.211B (2,189 units), book value/share $120.44 .
  • Q2 release/call (Jul 23, 2025): Revenue $1.163B, EPS $4.42, GM 24.7%, orders -8% YoY; cash $800M .
  • Q1 release/call (Apr 23, 2025): Revenue $0.976B, EPS $3.98, GM 25.9%, orders -10% YoY; cash $776M .