Meritage Homes CORP (MTH)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 revenue and EPS both declined year over year as heavier financing incentives and higher lot costs compressed margins; home closing revenue was $1.60B and diluted EPS was $4.72, with home closing gross margin down 200 bps to 23.2% .
• Demand remained constructive: orders rose 14% YoY to 3,304 with absorption pace 3.9/month and entry-level mix at 91%; backlog conversion hit a company record 177%, reflecting the move-in-ready strategy .
• FY 2025 guidance was lowered to 16,250–16,750 closings and $6.6–$6.9B revenue (from 16,500–17,500 and $6.7–$7.1B in Q3), citing a 7% mortgage-rate environment and continued use of incentives; Q1 2025 guided to margin ~22% and EPS $1.59–$1.83 .
• Capital allocation remained balanced: $741.5M land spend in Q4 (incl. Elliott Homes ~5,500 lots), dividend of $0.75/share (up from $0.27), $40M buybacks, and a 2-for-1 stock split completed Jan 2, 2025, supporting medium-term growth to ~20k annual units by 2027 .

What Went Well and What Went Wrong

• What Went Well

  • Record backlog conversion and rapid cycle times: “With over 50% of this quarter's closings sold during this quarter, our backlog conversion rate was a company-record 177%” and cycle times returned to ~120 days, underpinning faster turns and volume resilience .
  • Entry-level focus drove orders: Q4 orders +14% YoY with 91% entry-level mix and absorption pace of 3.9/month; demand remained solid despite rate volatility .
  • Land platform expansion and JV financing: ~14,400 net new lots added in Q4 (incl. Elliott), total owned/controlled ~85,600 lots; new California off-balance sheet JV to improve capital efficiency on long-duration development .

• What Went Wrong

  • Margin compression from incentives and lot costs: home closing gross margin fell 200 bps YoY to 23.2% as financing incentives remained elevated and lot costs rose; SG&A ticked up to 10.8% on higher commissions in tougher selling conditions .
  • Lower ASP and revenue: ASP on orders declined 4% YoY to $400k; home closing revenue fell 3% YoY to $1.60B despite +2% unit closings, reflecting mix and incentives .
  • FY25 guide trimmed: closings and revenue ranges lowered versus Q3, reflecting management’s conservative stance in ~7% mortgage-rate environment and heavier incentive utilization .

Financial Results

Segment breakdown (Q4 YoY):

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our 4,044 deliveries this quarter combined with home closing gross margin of 23.2% and SG&A leverage of 10.8% resulted in diluted EPS of $4.72” — CEO Phillippe Lord .
• “Our backlog conversion rate was a company-record 177%” — CEO Phillippe Lord .
• “We anticipate the use of financing incentives to remain elevated for the near future” — CFO Hilla Sferruzza .
• “We remain fully committed to building 100% energy-efficient homes going forward” — CFO Hilla Sferruzza (on IRA credits and customer value) .
• “We are now guiding to full year 2025 closings of 16,250 to 16,750 units and $6.6 billion to $6.9 billion in home closing revenue” — CFO Hilla Sferruzza .

Q&A Highlights

• Gross margin trajectory hinges on incentives; margins guided down to ~22% near term with upside if volume improves or financing costs ease; management views long-term GM of 22.5–23.5% as intact .
• Volume vs margin elasticity: strategy targets ~4–4.5 net sales/store; if rates worsen, MTH will raise incentives to maintain pace; if rates improve, pursue volume and margin simultaneously .
• Community count cadence: double-digit growth expected in 2025, skewed to Southeast; Elliott Homes integration will “pop” in Q2 .
• Off-balance-sheet land JV: first CA JV signed to finance long-duration development, expected to be more accretive than traditional land banks, with potential expansion nationwide .
• Demand elasticity to rates: September demand improved as rates fell; October demand steady but incentives higher; new build retains advantage via buydowns vs resale .

Estimates Context

• S&P Global consensus estimates for Q4 2024 and the prior quarters were unavailable at the time of request due to a data access limit; as a result, beats/misses versus Street cannot be assessed here (Values retrieved from S&P Global were unavailable).
• Given management’s FY25 reductions and near-term margin guidance (~22%), sell-side models are likely to adjust down FY25 closings/revenue and Q1 EPS to reflect heavier incentive utilization and a conservative rate backdrop .

Key Takeaways for Investors

• Near-term margin headwind is primarily financing incentives; watch rate volatility and incentive cadence—stabilizing rates could be a catalyst for margin recovery within the long-term 22.5–23.5% range .
• Volume resilience under move-in-ready strategy (177% conversion, 120-day cycle) supports cash generation and fixed-cost leverage; spring selling season setup looks constructive .
• FY25 guide trimmed; monitor Q1 execution on 3,200–3,500 closings and ~22% margin and any updates to incentive utilization; potential upside if rates settle lower .
• Land position expanded (85,600 lots) with CA JV financing; MTH is positioned to grow to ~20k units by 2027 without stressing the balance sheet—watch JV rollout and off-book community adds .
• Regional mix matters: Texas strong; East facing more resale; West mixed—company’s pricing/payment solutions should help defend pace and share .
• Shareholder returns remain active (dividend $0.75; buybacks; split); combined with book value growth and ROE in mid-teens, supports medium-term valuation .
• Trading lens: catalysts include spring demand, rate stabilization, clarity on JV program scale, and margin trajectory in Q1/Q2; risks include persistent high rates, tariffs/labor costs, and elevated incentive intensity .

Additional Q4 Context: Other Relevant Press Releases

• Elliott Homes acquisition adds Gulf Coast footprint (~5,500 lots) aligned to entry-level strategy .
• Dividend and buyback program expansion; two-for-one stock split completed Jan 2, 2025 .