Revenue: Decreased by 7% to $976 million. Gross Margin: 25.9%, down 120 basis points year over year. Net Income: Earnings per diluted share decreased to $3.98 from $4.78 last year. Pre-tax Income: Decreased by 19% to $146 million. Return on Equity: 19%. Community Count: 226, up from 219 a year ago. Homes Delivered: Decreased by 8% to 1,976 homes. New Contracts: Down 10% compared to last year. SG&A Expenses: 11.5% of revenue, up from 10.5% a year ago. Cash Balance: $776 million with no borrowings under the credit facility. Debt to Capital Ratio: 19%, down from 21% a year ago. Book Value per Share: $112, a $17 increase from a year ago. Mortgage and Title Operations Revenue: Increased 17% to $31.5 million. Average Closing Price: $476,000, a 1% increase from last year. EBITDA: $154 million, down from $187 million last year. Interest Income (Net of Expense): $5.2 million. Effective Tax Rate: 24% in the first quarter.

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Release Date: April 23, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

M/I Homes Inc (NYSE:MHO) posted strong first-quarter results despite challenging macroeconomic conditions. The company achieved a gross margin of 25.9%, reflecting some pricing power and the positive impact of new communities. M/I Homes Inc (NYSE:MHO) ended the quarter with a record 226 communities and plans to grow its community count by an average of 5% in 2025. The company has a strong balance sheet with $3 billion in equity and no borrowings under its $650 million unsecured revolving credit facility. M/I Financial, the mortgage and title operations of M/I Homes Inc (NYSE:MHO), achieved a 31% increase in pre-tax income, setting a first-quarter revenue record.

Negative Points

New contracts were down 10% compared to the previous year, indicating a decline in demand. Gross margins are expected to be under pressure throughout the year due to the continued use of mortgage rate buydowns. Homes delivered during the quarter decreased by 8%, and revenues decreased by 7% to $976 million. The spring selling season was described as 'just okay,' with demand remaining uneven and challenging. The company faces ongoing challenges from macroeconomic factors such as interest rate fluctuations, inflation concerns, and a volatile stock market.

Q & A Highlights

Q: Can you provide insights on buyer demand shifts across different price points and geographies? A: Robert Schottenstein, Chairman and CEO, noted no significant changes in demand across price points, with 54% of sales from the Smart Series targeting first-time buyers. Geographically, Tampa showed some recovery, while Indianapolis, Cincinnati, and Chicago performed well. Dallas and Houston remained strong, though Dallas slightly softened. Overall, the market remains challenging but not alarming.

Story Continues

Q: How are you managing your spec strategy given the current market conditions? A: Robert Schottenstein explained that M/I Homes maintains a balance between spec and to-be-built homes, with specs accounting for 50-65% of sales. Spec homes generally have lower margins, but the gap is managed to be around 150-200 basis points. The strategy is adjusted on a subdivision basis to optimize sales and margins.

Q: What is your approach to managing order pace and construction starts amid market volatility? A: Phillip Creek, CFO, stated that M/I Homes is cautious with construction starts, managing them on a subdivision basis. The company aims to balance volume and margins, with a slight increase in community count and homes in the field compared to last year. The focus is on maintaining a strong position without overextending.

Q: How do mortgage rate buydowns compare to price reductions in terms of effectiveness? A: Robert Schottenstein emphasized that mortgage rate buydowns are more effective than price reductions as they protect the integrity of the sales backlog. Buydowns are tailored to customer needs, with government rates generally lower than conventional ones. They are crucial in the current rate environment to drive traffic and sales.

Q: What are your expectations for cost trends, including lot costs and tariffs, for the rest of the year? A: Robert Schottenstein mentioned that current sticks and bricks costs are stable, with no significant tariff impact yet. Lot costs continue to rise, but M/I Homes focuses on securing premier locations. The company anticipates potential tariff impacts later in the year but remains well-positioned with a strong land strategy.

Q: With shares below book value, will you consider accelerating share repurchases? A: Robert Schottenstein stated that M/I Homes maintains a consistent repurchase strategy, focusing on maintaining low leverage and strong liquidity. The company evaluates repurchase opportunities quarterly but prioritizes financial stability and strategic positioning.

Q: How are gross margins trending, and what pressures do you foresee? A: Phillip Creek noted that gross margins were 25.9% in Q1, with continued pressure expected throughout the year. The company is focused on maintaining margins while balancing sales volume, with spec sales contributing to margin variability.

Q: What is the current status of your spec inventory, and how does it compare to last year? A: Phillip Creek reported having 700 completed specs at the end of the quarter, up from 400 last year, with a total of 2,400 specs compared to 1,900 a year ago. The increase aligns with a higher community count, and the company manages spec inventory carefully to optimize sales and margins.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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