Meritage Homes Corporation (NYSE: MTH) on Wednesday reported fourth-quarter adjusted earnings that exceeded Wall Street expectations, even as the homebuilder grappled with a contraction in home-closing revenue and significant margin compression. Despite the earnings beat, the company’s stock fell 1.2% in pre-market trading as investors weighed a revenue miss and a cautious outlook for the coming year.
The fifth-largest public homebuilder in the United States reported adjusted diluted earnings per share (EPS) of $1.67 for the quarter ended Dec. 31, 2025. This figure surpassed the analyst consensus estimate of $1.55, representing an 8% positive surprise. However, the result marked a 30% decline from the $4.72 per share reported in the same period a year earlier. Total home-closing revenue for the quarter fell 12% year-over-year to $1.41 billion, trailing analyst projections of $1.49 billion.
Quarterly Financial Performance and Margin Contraction
The fourth-quarter results reflected a broader trend of cooling demand and higher operational costs. Net income for the period was $84 million, or $1.20 per diluted share on a GAAP basis, down 51% from $172.6 million in the prior-year quarter. This decrease was largely attributed to lower closing volumes and a 5% drop in the average sales price (ASP) to $375,000.
A primary headwind for the quarter was the compression of home-closing gross margins, which fell to 16.5% from 23.2% in the fourth quarter of 2024. This 670-basis-point decline was driven by:
Increased Incentives: Heavier reliance on buyer incentives to maintain sales pace.
Asset Impairments: Non-recurring charges including $27.9 million in land walk-away fees and $7.8 million in inventory impairments.
Cost Pressures: Higher lot costs and reduced leverage of fixed expenses on lower revenue.
Excluding non-recurring charges, the adjusted home-closing gross margin stood at 19.3%.
Full-Year 2025 Results and Shareholder Returns
For the full year 2025, Meritage reported total revenue of $5.82 billion, a 9% decrease from the previous year. Annual net earnings totaled $453 million, or $6.35 per diluted share, compared to $786.2 million in 2024.
Despite the decline in profitability, the company maintained a disciplined capital allocation strategy. During 2025, Meritage returned $416 million to shareholders through dividends and share repurchases—representing 92% of the year’s total earnings. The company ended the year with a strong liquidity position, including $775 million in cash and no borrowings under its revolving credit facility. Its net debt-to-capital ratio remained low at 16.9%.
Strategic Outlook and 2026 Guidance
Management indicated that the strategy for 2026 will focus on expanding community counts to capture market share, even as the industry faces persistent affordability challenges. The company grew its active community count by 18% during the fourth quarter to 336 locations.
For the first quarter of 2026, Meritage projects:
Closings: Between 3,000 and 3,300 units.
Revenue: A range of $1.13 billion to $1.24 billion.
For the full year 2026, the company anticipates closing volumes will remain largely flat compared to 2025 levels, assuming stable market conditions. Meritage also announced plans for $400 million in additional share repurchases throughout the coming year.
Industry and Macroeconomic Context
The homebuilding sector continues to navigate a complex landscape defined by elevated mortgage rates and a shortage of existing home inventory. While new homebuilders like Meritage have benefited from the lack of resale competition, they have been forced to offer significant mortgage rate buy-downs and other financial incentives to keep monthly payments within reach for entry-level buyers.
The decline in Meritage’s ASP to $375,000—well below the national median for 2025—underscores its strategic pivot toward the affordable, energy-efficient “spec” home market. However, as the latest earnings report demonstrates, the cost of maintaining this sales volume through incentives is increasingly impacting the bottom line.
Reasons to Pass on MTH
- Profit decline: Q4 net income fell 51% year-over-year; full-year earnings declined 42%.
- Margin pressure: Home-closing gross margin dropped 670 bps to 16.5%.
- Revenue miss: Q4 home-closing revenue fell 12% and missed expectations; full-year revenue declined 9%.
- Lower pricing and volumes: Average sales price fell 5% and closings declined.
- Incentive reliance: Increased use of mortgage rate buydowns continues to weigh on margins.
- Impairment charges: Land walk-aways and inventory impairments added to earnings volatility.
- Limited growth outlook: 2026 closing volumes expected to be flat year-over-year.
- High payout ratio: Shareholder returns equaled 92% of annual earnings, reducing buffer amid uncertainty.
