Homebuilder Meritage Homes (NYSE:MTH) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 7.9% year on year to $1.36 billion. The company’s full-year revenue guidance of $6.75 billion at the midpoint came in 1.5% above analysts’ estimates. Its GAAP profit of $1.69 per share was in line with analysts’ consensus estimates.
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Meritage Homes (MTH) Q1 CY2025 Highlights:
- Revenue: $1.36 billion vs analyst estimates of $1.33 billion (7.9% year-on-year decline, 1.9% beat)
- EPS (GAAP): $1.69 vs analyst estimates of $1.69 (in line)
- The company reconfirmed its revenue guidance for the full year of $6.75 billion at the midpoint
- Free Cash Flow was -$48.17 million, down from $75.75 million in the same quarter last year
- Backlog: $812.4 million at quarter end, down 34.7% year on year
- Market Capitalization: $4.90 billion
"Meritage had a healthy start to 2025, selling almost 3,900 homes in the first quarter despite a slower start to the year. We achieved an average absorption pace of 4.4 net sales per month this quarter, overcoming still-elevated mortgage rates and increasing macroeconomic concerns," said Steven J. Hilton, executive chairman of Meritage Homes.
Company Overview
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE:MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Home Builders
Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Meritage Homes grew its sales at a solid 10.2% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Meritage Homes’s recent performance shows its demand has slowed as its revenue was flat over the last two years. 
We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Meritage Homes’s backlog reached $812.4 million in the latest quarter and averaged 38.2% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future. 
This quarter, Meritage Homes’s revenue fell by 7.9% year on year to $1.36 billion but beat Wall Street’s estimates by 1.9%.
Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.
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Operating Margin
Meritage Homes has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.
Analyzing the trend in its profitability, Meritage Homes’s operating margin rose by 1.9 percentage points over the last five years, as its sales growth gave it operating leverage.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Meritage Homes’s EPS grew at an astounding 21.1% compounded annual growth rate over the last five years, higher than its 10.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into Meritage Homes’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Meritage Homes’s operating margin expanded by 1.9 percentage points over the last five years. On top of that, its share count shrank by 6.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Meritage Homes, its two-year annual EPS declines of 10.2% mark a reversal from its (seemingly) healthy five-year trend. We hope Meritage Homes can return to earnings growth in the future.
In Q1, Meritage Homes reported EPS at $1.69, down from $2.53 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Meritage Homes’s full-year EPS of $9.88 to shrink by 7.7%.
Key Takeaways from Meritage Homes’s Q1 Results
We enjoyed seeing Meritage Homes beat analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance exceeded Wall Street’s estimates. On the other hand, its backlog missed, which could signal weaker revenue to come. Overall, this was a mixed quarter. The stock traded up 1.2% to $69 immediately following the results.
So do we think Meritage Homes is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.