M/I Homes(MHO) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In the first quarter, new contracts decreased by 10% compared to last year, with a cancellation rate of 10% [10][18] - Revenues decreased by 7% to $976 million, while homes delivered decreased by 8% to 1,976 homes [11][21] - Gross margins were reported at 25.9%, down 120 basis points year-over-year but up 130 basis points from the previous quarter [10][21] - Pre-tax income decreased by 19% to$ 146 million, with a pre-tax income margin of 15% and a return on equity of 19% [12][23] - Earnings per diluted share decreased to $3.98 from$ 4.78 last year [24] Business Line Data and Key Metrics Changes - The mortgage and title operations achieved pre-tax income of $16.1 million, an increase of 31% from the previous year, with revenue increasing by 17% to a record$ 31.5 million [25] - The average mortgage amount increased to $406,000, while loans originated decreased by 2% to 1,530 [26] Market Data and Key Metrics Changes - New contracts in the Northern region decreased by 8%, while the Southern region saw a decrease of 11% compared to last year's first quarter [12] - Deliveries in the Southern region decreased by 13%, while the Northern region saw a decrease of 2% [13] Company Strategy and Development Direction - The company plans to continue offering mortgage rate buydown incentives to drive sales, indicating that gross margins may face pressure throughout the year [16] - The company remains optimistic about long-term growth in the homebuilding industry due to an undersupply of homes and increasing household formations [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains challenging, with factors such as inflation, interest rate fluctuations, and consumer confidence impacting demand [9][10] - Despite the challenges, management expressed confidence in the company's strong balance sheet and land position, indicating readiness for future growth [15][94] Other Important Information - The company ended the quarter with a record$ 3 billion in equity and a debt-to-capital ratio of 19% [15] - The company has repurchased 13% of its outstanding shares since 2022, with $200 million remaining under the current board authorization [31] Q&A Session Summary Question: Insights on buyer demand shifts by geography and price point - Management noted no significant changes in demand across price points, with Smart Series communities performing well [38] - Tampa market showed some recovery, while Indianapolis and Chicago remained strong [41][42] Question: Spec strategy and margin differentials - Management indicated that spec sales account for 50% to 65% of sales, with slightly lower margins on spec products [52][53] Question: Order pace and units under construction - Management is cautious about starts and is managing construction on a subdivision basis, with a focus on maintaining good margins [64][66] Question: Impact of lot cost inflation and supply chain - Currently, there has been no significant impact from lot cost inflation, and costs are stable compared to last year [85][88] Question: Share repurchase strategy - Management is consistent with a$ 50 million repurchase strategy and is open to adjusting based on market conditions [99][100] Question: Gross margin backlog and pricing power - Management expects continued pressure on margins and noted that true pricing power is limited in the current environment [107][127]