Taylor Morrison (TMHC) Q4 2025 earnings review
Growth Hits a Wall: 2026 Guidance Resets Expectations Lower
Taylor Morrison ended 2025 on a down note, with Q4 revenue falling 11% and margins compressing 300bps to 21.8%. However, the real shock lies in the FY26 guidance. Management projects ~11,000 home closings for 2026—a steep 15% decline from the nearly 13,000 delivered in 2025. Coupled with a 40% collapse in backlog value and Q1 gross margin guidance of just ~20%, the narrative has shifted from 'growth speed bump' to a full-scale retrenchment.
🐂 Bull Case
Despite operational headwinds, TMHC is aggressively buying back stock. They repurchased $381M in FY25 (6% of shares) and just authorized a new $1 billion program. Book value per share grew 14% to nearly $64.
Controlled off-balance sheet lots hit 54%, and total liquidity sits at $1.8 billion. The reduction in land spend ($2.2B in FY25 vs $2.4B prior) shows discipline in a softening market.
🐻 Bear Case
The sales pipeline has evaporated. Backlog value fell 42% YoY to $1.9 billion. With cancellations rising to 12.5% of orders and absorption pace slowing to 2.4, the visibility for 2026 revenue is extremely poor.
Gross margins are in freefall, dropping from 24.8% in 24Q4 to 21.8% in 25Q4, with guidance for ~20% in 26Q1. The loss of pricing power is evident as the company leans on incentives to move inventory.
⚖️ Verdict: 🔴
Bearish. The FY26 guidance implies a structural shrink in the business (-15% volume) rather than a temporary pause. With margins heading toward 20% and backlog down 40%, the valuation support comes solely from buybacks, not operations.
Key Themes
Severe Margin Compression
Margins have deteriorated faster than expected. Q4 Home Closings Gross Margin fell 300bps YoY to 21.8%. More alarmingly, Q1 2026 guidance calls for ~20%, suggesting the bottom hasn't been reached. Management cites competitive pricing pressures that are 'unlikely to meaningfully abate,' forcing a reliance on expensive incentives.
Backlog Value Evaporation
The forward-looking indicators are flashing red. Ending backlog value plummeted 41.8% YoY to $1.86 billion (from $3.19 billion). The unit count in backlog dropped 40.6%. This explains the weak FY26 guidance—the company simply doesn't have the sold units in the pipeline to support 2025-level volumes.
Central Region Weakness
The Central region is significantly underperforming. Q4 Net Sales Orders in Central dropped 23.6% YoY, and backlog value in the region collapsed 57%. This geography is a major drag on overall performance compared to the West (Orders +4.4%) and East (+2.6%).
Aggressive Share Repurchases
Management is using the balance sheet to support EPS. They repurchased 1.2 million shares in Q4 and 6.5 million for the full year ($381M total). The Board just authorized a new $1 billion program (approx. 15-20% of market cap at current prices), replacing the prior authorization. This is the primary bull thesis lever.
Resort Lifestyle Brand (Esplanade)
Management continues to highlight the Esplanade resort lifestyle brand as a differentiator. Despite overall headwinds, they plan to 'lean further into the opportunity to expand' this brand. However, this narrative is currently fighting against the macro tide of a 40% backlog drop.
SG&A Deleverage
As revenues fall, fixed cost leverage is reversing. SG&A rose to 9.9% of home closings revenue in Q4 (vs 9.4% prior year). Guidance for FY26 puts SG&A in the 'mid-10% range,' indicating further efficiency loss as volume shrinks to 11,000 units.
Other KPIs
Decelerating. Down 5% YoY. While improved sequentially from Q3 (-13% YoY), the absorption pace of 2.4 remains weak historically. The breakdown shows clear bifurcation: West +4.4%, East +2.6%, but Central -23.6%.
Stable. Includes $850 million in unrestricted cash and $928 million in revolver capacity. Net homebuilding debt-to-capital ratio is a healthy 17.8%, providing ample room for the announced buybacks without risking financial distress.
Stable/Slight Decline. Down 2% YoY. Guidance for FY26 ($580k-$590k) implies further pricing pressure or mix shift downward, confirming that 'price over pace' strategy is losing steam.
Guidance
Reversing/Negative. This is a sharp contraction from 12,997 closings in FY25 (-15% YoY). It contradicts the typical 'steady growth' narrative and reflects the reality of the decimated backlog.
Decelerating. Up from 9.5% in FY25. This negative operating leverage is a direct result of falling revenue volume against a semi-fixed cost base.
Decelerating. A significant drop from 21.8% in Q4 25 and 24.0% in Q1 25. This suggests the 'incentive war' is intensifying in the early spring selling season.
Accelerating. Up slightly from $381 million in FY25. Management is using cash flow to support the stock price amidst operational contraction.
Key Questions
Structural Margin Reset
Gross margins are guided to ~20% for Q1 26, down almost 500bps from peak. Is this 20% level the new normal for FY26, or do you expect relief in the back half? What specific land cost or incentive assumptions underpin this?
Central Region Collapse
Central region orders were down 24% and backlog value was down 57%. This performance is drastically worse than East/West. Is this a specific product mix issue, or are you exiting certain submarkets in Texas/Central?
Bridge to Growth
With backlog down 40% and FY26 closings guided down 15%, what is the catalyst for a return to growth? Are you banking entirely on a rate cut environment, or is there a strategic pivot in product/pricing planned?