M/I Homes(MHO) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record quarterly net income of $136.7 million, a 27% increase year-over-year, and a 34% increase in earnings per diluted share [6][25] - Revenues increased by 8% to a record$ 1 billion, with gross margins improving by 220 basis points to 27.3% [7][22] - The return on equity improved to 27%, and the pretax income margin was 17.5% [6][23] - The backlog sales value increased by 9% to a record $2.7 billion [7] Business Line Data and Key Metrics Changes - The company sold 1,820 homes during the quarter, a decline of 20% from the record 2,267 homes sold in the same quarter last year [9] - The Smart Series, the most affordable line of homes, comprised approximately 50% of company-wide sales, up from 40% a year ago [10] - M/I Financial, the Financial Services segment, contributed pretax income of$ 8.7 million, down from $18 million in the previous year [28] Market Data and Key Metrics Changes - New contracts in the Southern region decreased by 21%, while the Northern region saw a decrease of 18% [12] - Deliveries in the Southern region decreased by 13%, while deliveries in the Northern region increased by 4% [13] - The company experienced strong performance in markets such as Dallas, Minneapolis, Tampa, Raleigh, Columbus, and Charlotte [11] Company Strategy and Development Direction - The company plans to open a record number of new communities in the latter half of 2022 and continue to grow community count in 2023 [14] - The company maintains a strong land position with approximately 24,800 owned lots, representing roughly a 3-year supply [15] - The management emphasized the importance of securing premier locations and maintaining flexibility through option contracts [42] Management's Comments on Operating Environment and Future Outlook - Management noted a noticeable moderation in demand due to rising mortgage rates and inflationary pressures [8] - Despite current challenges, the company believes housing fundamentals remain solid with an undersupply of homes and favorable long-term demographics [16] - The management expressed confidence in navigating through uncertain times due to a strong balance sheet and low debt levels [18] Other Important Information - The company ended the quarter with record shareholders' equity of$ 1.8 billion, a 24% increase year-over-year [17] - The average closing price for the second quarter was an all-time record of $477,000, a 16% increase from the previous year [22] - The company repurchased 860,000 shares for$ 40 million in the first half of the year, with $108 million remaining under the repurchase authorization [25][26] Q&A Session Summary Question: Impact of lumber price drop on gross margins - Management indicated that the drop in lumber prices is just beginning to be reflected in closing margins, with most homes closed during the quarter not reflecting the decline [39][40] Question: Re-underwriting of option contracts - The company is revisiting underwriting metrics for deals as market conditions change, ensuring flexibility and careful evaluation of each deal [42][43] Question: Incentives and pricing strategies - Management noted that while some incentives are being offered, there hasn't been widespread price cutting, and they are focused on closing their profitable backlog [84][86] Question: July sales activity - Management observed that July is looking more like June, with some markets showing strength while others are under pressure [60][61] Question: Land prices and competition - The company noted that land prices are leveling off, with less competition for new land deals, but they do not foresee significant price declines [122][123]