M/I Homes posts Q3 adjusted EPS of $2.70, falls short of estimates

Revenue came in at $1.08bn against a $1.12bn estimate as higher mortgage rates and weaker demand weighed on the homebuilder's results

M/I Homes reported third-quarter adjusted earnings per share of $2.70, which excludes inventory charges, missing Wall Street's estimate by $0.69. Revenue was $1.08bn against expectations of $1.12bn.

On a GAAP basis, net income was $67m, or $2.56 per diluted share, down from $107m, or $3.92 per diluted share, a year earlier, according to the company's earnings release. The results included pre-tax inventory charges of $4.7m, equal to $0.14 per diluted share. Revenue fell 5% from a year ago to $1.1bn, with new contracts down 2% to 1,861 and homes delivered down 2% to 2,241. Gross margin was 20.9%, or 21.3% excluding the inventory charges.

Chief Executive Robert H. Schottenstein said increasingly difficult market conditions, including higher mortgage rates and weaker demand, pressured results, though he said the company's strong balance sheet positions it to manage the current cycle. He added that the quarter generated $87m of pre-tax income, an 8% return, despite those conditions. Shareholders' equity reached a record $3.3bn, with book value per share rising to a record $130, and the homebuilding debt-to-capital ratio stood at 18%. For the nine months ended September 30, net income was $213.5m, or $8.14 per diluted share, down from $339.0m, or $12.32 per diluted share, in the same period last year.

M/I Homes repurchased $50m of its common stock during the quarter. The size of the miss, nearly $0.69 even with charges stripped out, points to incentive spending and pricing concessions cutting deeper into margins than builders had guided for, a pattern that has built across the homebuilding sector for much of this year as mortgage rates climbed and buyer traffic slowed. Leaning on buybacks rather than reinvestment in land or spec inventory during a soft quarter suggests management is using capital returns to offset weaker operating performance. Should higher rates persist into the spring selling season, other builders still to report could face similar pressure on volume and pricing.