Market Overview - The S&P 500 is on track for its sixth consecutive positive month, marking the longest streak since August 2021 [1] - The market is experiencing a cyclical phase within a secular bear market, with expectations for continued growth in the upcoming year [5][6] Company Insights - Brian Bellski has launched a new firm, Humilis Investment Strategies, aiming to provide similar portfolios and research as before [3][4] - The firm plans to adapt its portfolio strategies while remaining open to new investment themes [4] Earnings and Performance Expectations - The forecast for next year includes high single-digit earnings growth, with a 10-year Treasury yield expected between 3.5% and 4.5%, creating a favorable environment for stocks [8][10] - There is an expectation of stronger earnings growth driven primarily by financials, with a shift away from concentrated performance in large-cap stocks [10][12] Market Dynamics - A clear distinction is emerging between different sectors, particularly technology, financials, and consumer discretionary, indicating a broader market performance rather than reliance on mega-cap stocks [9][11] - The anticipated performance for the market aligns with historical trends, suggesting a return to traditional stock market performance over the last 80 years [12]

Financial Data and Key Metrics Changes - In Q3 2025, the company reported a pretax income of $48 million and a net income of $37 million, representing a 710% increase sequentially [15] - Adjusted net income was $46 million or $1.52 per diluted share, while EBITDA for the quarter was $70 million and adjusted EBITDA was $82 million [16] - Home sales revenues for Q3 were $955 million, down 2% sequentially, with deliveries of 2,486 homes declining by 4% [16] - The average sales price increased by 2% quarter over quarter to $384,000, benefiting from a higher percentage of deliveries from the West and Mountain regions [16] Business Line Data and Key Metrics Changes - The adjusted homebuilding gross margin was 20.1%, up from 20% in Q2, while GAAP homebuilding gross margin increased to 17.9% from 17.6% [17] - Direct construction costs decreased by 3% year to date, contributing to improved margins despite higher incentives [10][15] - Net new contracts of 2,386 homes declined by 6% sequentially, which was better than the historical average decline of 9% [11] Market Data and Key Metrics Changes - The company ended Q3 with a community count of 321, which increased by 5% year over year [12] - The finished lot costs increased in the mid-single digit range year over year and sequentially, but are expected to remain flat in Q4 [13] - Adjustable rate mortgages (ARMs) accounted for close to 20% of the mortgages originated in Q3, up from less than 5% in Q1 [14] Company Strategy and Development Direction - The company aims to increase its community count by mid-single digits by year-end 2025, focusing on increasing market share in existing markets [6][7] - The strategy includes maintaining cost controls, improving operational efficiencies, and investing in processes and systems for future growth [7][10] - The company plans to continue repurchasing shares and maintaining dividends while navigating current market headwinds [21][22] Management's Comments on Operating Environment and Future Outlook - Management noted that homebuyer demand has been muted due to weaker consumer confidence, but there is pent-up demand for affordable homes [6] - The expectation is that any relief in interest rates and improvement in consumer confidence will unlock buyer demand [6] - The company anticipates that incentives will be the largest driver of changes to gross margins in the near term, with an expected increase in incentives for Q4 [12][19] Other Important Information - The company completed a private offering of $500 million of senior notes due 2033, using proceeds to redeem existing senior notes due 2027 [20] - The tax rate for Q3 was 21.8%, driven by 45L tax credits received in excess of previous estimates, with a full-year tax rate expected between 24.5% and 25.5% [20] Q&A Session Summary Question: Regarding the adjusted gross margin exceeding guidance, was this due to cost controls or reduced incentives? - Management indicated that the margin improvement was due to a combination of prudent cost controls and moderated incentives, with direct costs down 3% year to date [25][26] Question: How will the shift in buyers' use of adjustable rate mortgages impact the business? - Management noted that ARMs have gained acceptance, particularly among first-time homebuyers, allowing for lower initial rates without needing to buy down a fixed rate for 30 years [27][28] Question: Can you clarify the community count guidance and the expected ramp-up in Q4? - Management confirmed that the community count is expected to increase by around 5% year over year, with consistent monitoring throughout the year [30][32] Question: What is the outlook for SG&A costs and the factors driving lower costs year over year? - Management highlighted operational efficiencies and headcount adjustments as key factors, with a focus on maintaining efficiency in the competitive market [37][39] Question: Can you provide more details on the lots the company walked away from this quarter? - Management explained that they are underwriting to current market conditions and have exited near-term projects that did not fit current underwriting criteria [40][41]

Core Insights - Vulcan Value Partners reported positive absolute performance across all strategies in Q3 2025, with the All-Cap Composite leading at 5.5% net return [1] - The investor letter highlighted CarMax, Inc. as a significant detractor to performance, with a one-month return of -25.97% and a 52-week loss of 40.87% [2][3] Company Performance - CarMax, Inc. is the largest used car retailer in the U.S. and has the third largest wholesale business [3] - The company experienced a 5% decline in retail volumes during Q2 2025, attributed to volatility in used car prices and demand shifts due to tariff announcements [3] - Year-to-date, CarMax's volumes and profits are up year over year, indicating potential for recovery [3] Market Outlook - Despite short-term challenges, CarMax is viewed as a strong business with favorable long-term prospects due to its competitive advantages such as customer experience, brand strength, scale, vertical integration, and omnichannel approach [3] - The company is currently under earning but is well-positioned to grow volumes and increase earnings as the market normalizes [3] - CarMax maintains a solid balance sheet, generates significant free cash flow, and is actively buying back shares, indicating confidence in its value [3]

We’re Back to Normal in the Markets Again https://t.co/SsT2bTTqzQ ...