Executive Summary

Orders grew 4% YoY to 3,636, but revenue and EPS declined on lower ASPs and elevated incentives; Q3 total revenue was $1.424B and GAAP diluted EPS was $1.39 (adjusted EPS $1.55) .
Results missed S&P Global consensus: revenue $1.424B vs $1.474B est and EPS $1.55 vs $1.72 est; higher incentives, lost fixed-cost leverage, and impairments drove the shortfall (see Estimates Context) .
Gross margin compressed: home closing gross margin 19.1% (adj. 20.1%) vs 24.8% LY, reflecting incentives, lot cost inflation, impairments/land walk-aways, and reduced scale benefits; SG&A rose to 10.8% of revenue on higher commissions/tech costs and de-leverage .
Q4 guidance implies continued margin pressure (home closing GM 19–20%) and EPS $1.51–$1.70; management highlighted consumer-confidence headwinds, but reiterated flexibility via spec strategy, faster cycle times (~105 days), and record community count (334) to support near-term growth .

What Went Well and What Went Wrong

What Went Well
- Community count hit a record 334 (+20% YoY; +7% QoQ), underpinning future growth and share gains .
- Cycle times improved to ~105 days, supporting high backlog conversion (211%) and intra-quarter closings (~60% of deliveries), enhancing asset turns and flexibility .
- Capital returns accelerated: $85M returned in Q3 (dividends + buybacks); Board added $500M to repurchase authorization (with $664M remaining) .
- Quote: “We generated home closing revenue of $1.4 billion and achieved an adjusted home closing gross margin of 20.1% and adjusted diluted EPS of $1.55…” — CEO Phillippe Lord .
What Went Wrong
- Pricing pressure from elevated incentives lowered ASPs and margins; home closing gross margin fell 570 bps YoY to 19.1% (adj. 20.1%) .
- Impairments and land walk-away charges ($14.5M) further weighed on earnings; GAAP EPS fell 48% YoY to $1.39 .
- De-leverage from lower revenue and calendar cadence (July softness) increased SG&A to 10.8% of home closing revenue; effective tax rate rose (22.6%) as fewer homes qualified for IRA energy credits .

Financial Results

Metric	Q3 2024	Q2 2025	Q3 2025
Total Revenue ($B)	$1.597	$1.633	$1.424
GAAP Diluted EPS ($)	$2.67	$2.04	$1.39
Adjusted Diluted EPS ($)	$2.69	—	$1.55
Home Closing Gross Margin (%)	24.8%	21.1%	19.1%
Adj. Home Closing Gross Margin (%)	24.9%	21.4%	20.1%
SG&A % of Home Closing Revenue	9.9%	10.2%	10.8%

Segment mix – Closings and Revenue

Region	Q3 2024 Closings (Units)	Q3 2024 Revenue ($M)	Q3 2025 Closings (Units)	Q3 2025 Revenue ($M)
West	1,220	$594.5	883	$420.7
Central	1,346	$484.7	1,260	$443.1
East	1,376	$506.5	1,542	$535.6
Total	3,942	$1,585.8	3,685	$1,399.3

Key KPIs

KPI	Q3 2024	Q2 2025	Q3 2025
Orders (Units)	3,512	3,914	3,636
ASP – Orders ($K)	406	395	389
ASP – Closings ($K)	402	387	380
Ending Backlog (Units)	2,284	1,748	1,699
Ending Backlog ($M)	931.7	695.5	670.0
Avg Absorption Pace (per month)	—	4.3	3.8
Cancellation Rate (%)	—	10%	11%
Backlog Conversion (%)	—	208%	211%
Active Communities (Ending)	278	312	334

Vs Estimates (S&P Global)

Metric	Consensus	Actual	Surprise
Revenue ($B)	1.474*	1.424	Miss*
EPS ($)	1.72*	1.55	Miss*
# Estimates (EPS / Revenue)	9 / 6*	—	—

*Values retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Home Closings (Units)	Q4 2025	—	3,800–4,000	New
Home Closing Revenue ($B)	Q4 2025	—	$1.46–$1.54	New
Home Closing Gross Margin (%)	Q4 2025	—	19–20%	New
Effective Tax Rate (%)	Q4 2025	—	~24.5%	New
Diluted EPS ($)	Q4 2025	—	$1.51–$1.70	New
Full-year Land Spend Target ($B)	FY 2025	~$2.0 (lowered from $2.5 in Q2)	~“around $2B” (maintained)	Maintained
Quarterly Dividend ($/sh)	Q3 2025	$0.43 (declared)	$0.43 (declared 8/21/25)	Maintained
Share Repurchase Authorization	Ongoing	+$500M approved (8/21)	$664M remaining at 9/30/25	Increased in Q3

Notes: In Q1, management reiterated full-year 2025 closings (16,250–16,750) and revenue ($6.6–$6.9B) guidance; in Q2, they ceased full-year guidance given high backlog conversion/low visibility and provided only Q3 guidance .

Earnings Call Themes & Trends

Topic	Q1 2025 (prior two quarters)	Q2 2025 (prior quarter)	Q3 2025 (current)	Trend
Incentives & ASP pressure	Incentives elevated; ASP on closings $393K; GM 22.0%	Higher use of rate buydowns; ASP $387K; GM 21.1% (adj 21.4%)	Incentives still elevated; ASP $380K; GM 19.1% (adj 20.1%); mix and lost leverage cited	Worsening margin pressure
Cycle times	~120 days; backlog conversion 221%	~110 days; >200% conversion	~105 days; 211% conversion	Improving speed/turns
Community count	290 ending (+8% YoY)	312 ending (record; +9% YoY)	334 ending (record; +20% YoY)	Strong growth
Macro & demand	Healthy traffic; buyer psychology fragile	Softer spring; July seasonal trough; low visibility beyond Q3	Softer Q3; consumer confidence weak; lower rates not yet boosting demand	Macro headwind persists
Realtor strategy	Co-broke ~92%; repeat realtor engagement rising	Co-broke low 90%; higher commissions	External commissions elevated; strategy critical to pace	Steady execution
Supply chain & labor	Labor slack; no material tariff impact modeled	Direct costs falling; labor available; rebidding underway	3% YoY directs reduction; rebidding land dev; tariff risk into 2026–28	Gradual cost relief
Tariffs/regulatory	Monitoring; minimal near-term impact	Not in numbers; potential later	Potential 2026 cost impact; mitigants via vendors/product flexibility	Watch 2026
Starts/spec levels	Calibrated to sales; ~23 specs/store	~22 specs/store; 5 months supply	~19 specs/store; targeting ~16 over time	Tightening inventory

Management Commentary

Strategic focus: “Our 100% spec strategy and… improvements in our cycle times… give us the flexibility to ramp up or slow down our starts based on real-time local demand.” — CEO Phillippe Lord .
Margin path: “Our long-term gross margin target remains at 22.5% to 23.5%. For this target to occur… pull back on the incentive burden… and benefit from the scale and efficiency of our spec strategy.” — CFO Hilla Sferruzza .
Market psychology: “We believe the biggest impediment… relates to buyer psychology… lower mortgage rates have not translated to a notable improvement in demand.” — CEO Phillippe Lord .
Shareholder returns: “We… returned $85 million… in Q3… Board approved an additional $500 million… and… $664 million remained available…” — Press Release .
Liquidity: “With cash of $729 million… and net debt-to-capital ratio of 17.2%… we are comfortable with our current liquidity.” — CEO Phillippe Lord .

Q&A Highlights

Inventory turns and ROE: Management aims to reduce specs to ~16 per store and improve turns as cycle times fall, supporting higher ROE and cash generation into 2026 .
Margin cadence: Q3 margin decline was largely de-leverage; Q4 guide lower due to clearing older specs and typical year-end incentive environment .
Buybacks: Cadence likely at least at current Q3 level (~$55M), with opportunistic acceleration given perceived undervaluation .
Competitive landscape: Elevated resale inventory is not directly comparable to Meritage’s entry-level product with financing incentives; strategy targets realtor channel and payment affordability .
Land cost outlook: Expect stabilizing/green shoots in development costs, with more benefits in late 2026–2028; land prices broadly sticky near term .

Estimates Context

S&P Global consensus vs actual: Revenue $1.474B est vs $1.424B actual; EPS $1.72 est vs $1.55 actual (9 EPS and 6 revenue estimates). Both metrics missed, driven by higher-than-modeled incentive utilization, impairments/land walk-aways, and fixed-cost de-leverage from seasonal cadence .
Implication: Street models likely need to reflect sustained elevated incentives into Q4 (company guides 19–20% home closing GM) and the clearing of older specs, with potential margin recovery contingent on consumer confidence and incentive moderation .
Values retrieved from S&P Global.

Key Takeaways for Investors

Near-term profitability pressured: elevated incentives, de-leverage, and charges reduced margins; Q4 guide implies continued pressure (19–20% home closing GM) .
Structural execution intact: faster cycle times (~105 days), high backlog conversion (~211%), and record community count (334) support volumes and asset turns into 2026 .
Capital returns accelerating: $85M in Q3; $664M repurchase capacity remains; management indicates willingness to increase repurchases opportunistically .
Watch demand psychology: management sees buyer sentiment, not rates alone, as the key impediment; if confidence improves, Meritage can quickly pull back incentives and expand margins given spec inventory .
Cost outlook improving at the margin: direct costs down ~3% YoY; potential land development cost relief later in 2026–2028; tariff risks monitored but not yet embedded materially .
Regional mix matters: East region strength partially offsets weakness in select West/Central markets; community openings remain broad-based .
Trading lens: Results missed Street; Q4 guide conservative on incentives and older spec clear-out. Near-term stock drivers include repurchase acceleration, cadence of orders through holiday period, and any signs of incentive moderation in early 2026 .

Meritage Homes CORP (MTH)·Q3 2025 Earnings Summary