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KB Home's Q3 Earnings Meet, Stock Down on Lower FY24 Margins View
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KB Home (KBH - Free Report) reported mixed results for third-quarter fiscal 2024 (ended Aug. 31, 2024). Its earnings met the Zacks Consensus Estimate, while revenues beat the same. On a year-over-year basis, both metrics increased.
Shares of this leading homebuilder dipped 6% in the after-market trading session on Tuesday. Investors’ sentiments might have been hurt by tepid gross and operating margins in the fiscal third quarter, as well as lowered expectations for the same.
The company noted that it experienced variability in demand across the quarter, with softening in late June through July. The trend was diverse as buyers continued to evaluate elevated mortgage rates and general economic concerns. Nonetheless, orders stabilized on improving rates.
KBH remains encouraged for its fiscal fourth quarter thanks to the recent strength in demand for its affordably priced personalized homes.
Leveraging the advantages of its Built to Order model, which provides buyers with choices, flexibility and affordability, the company is confident in its ability to effectively navigate potential fluctuations in housing market dynamics.
Earnings & Revenue Discussion
KBH reported adjusted earnings per share (EPS) of $2.04, which increased 13.3% from the year-ago quarter’s $1.80. The upside was mainly backed by higher net income and the favorable impact of repurchases over the past several quarters.
Total revenues of $1.75 billion topped the consensus mark of $1.73 billion by 1.5% and increased 10.4% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.746 billion grew 10.5% from the prior-year quarter’s level. The number of homes delivered was 3,631 units, up 7.6% from the year-ago period’s level. The reported figure was better than our projection of 3,565 units for the quarter. The average selling price, or ASP, also increased 3.1% from a year ago to $480,900. Our model had predicted ASP to be $481,500 for the fiscal third quarter.
Net orders slipped to 3,085 units from 3,097 reported in the prior year. The value of net orders was up 2% from the year-ago quarter to $1.54 billion. We projected orders to be 3,357 units or $1.68 billion for the fiscal third quarter. Absorption or monthly net orders per community decreased to 4.1 from 4.3.
The cancelation rate, as a percentage of gross orders, was 15% compared with 21% in the year-ago period.
The quarter-end backlog totaled 5,724 homes, down 1.8% from the year-ago figure of 7,008 units. Further, potential housing revenues from the backlog declined 14% from the prior-year period to $2.92 billion.
The average community count was up 5% to 251, and the ending community count rose 10% year over year to 254.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 80 basis points (bps) year over year to 20.7% due to unfavorable product and geographic mix. Our model anticipated housing gross margin to be 21% for the quarter.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — decreased 40 bps to 9.8%, reflecting increased operating leverage from higher housing revenues.
Homebuilding’s operating margin (excluding inventory-related charges) was down 50 bps to 10.9%, owing to lower housing gross margin. We expected operating margin to be 10.9% for reported quarter.
Financial Services: The segment's revenues declined 9.1% year over year to $6.63 million. The pretax income was $11 million, up 11% from a year ago, mainly due to increased equity in income of KBH’s mortgage banking joint venture.
Financial Position
KB Home had cash and cash equivalents of $374.9 million as of May 31, 2024, down from $727.1 million reported at the end of fiscal 2023. The company had a total liquidity of $1.46 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. No cash borrowings were outstanding under the revolver on Aug. 31, 2024.
As of the fiscal third-quarter end, the debt-to-capital ratio improved to 29.8% from 30.7% at the end of 2023.
In the fiscal third quarter, it repurchased approximately 1,869,292 shares of its outstanding common stock for $150 million. In fiscal 2023, KBH repurchased 9.2 million shares for $411.4 million. As of Aug. 31, 2024, it had $800 million in stock remaining under the repurchase authorization.
Fiscal 2024 Guidance
For the full year, it raised housing revenues expectation to the $6.85-$6.95 billion band from the $6.70-$6.90 billion expected earlier. The estimated figure is up from the fiscal 2023 level of $6.37 billion.
ASP is now estimated to be $490,000 (compared with the prior projection of $485,000-$495,000). The expected figure is up from $481,300 reported a year ago.
Assuming no inventory-related charges, KB Home now expects the housing gross margin between 21.1% and 21.2% (compared with 21-21.5% projected earlier), down from 21.4% reported a year ago.
Homebuilding’s operating margin (assuming no inventory-related charges) is now expected to be in the band of 11.1-11.2% compared with 11-11.4% expected earlier. In fiscal 2023, it was 11.3%.
SG&A expenses, as a percentage of housing revenues, are now likely to be 10% compared with 10.1% anticipated earlier. It still projects an effective tax rate of approximately 23%. The company expects the ending community count to be within 250-255.
Zacks Rank
KB Home currently carries a Zacks Rank #3 (Hold).
A Recent Peer Release
Lennar Corporation (LEN - Free Report) reported third-quarter fiscal 2024 results, wherein its earnings and revenues surpassed the Zacks Consensus Estimate.
On a year-over-year basis, revenues increased, given the company’s emphasis on maintaining a steady production rate to drive sales momentum. Lennar strategically utilized pricing, incentives, marketing expenditure and dynamic pricing insights to ensure steady sales volume despite fluctuations in interest rates. However, earnings fell by a cent from the year-ago period.
Key Picks
Some better-ranked stocks have been discussed below:
The consensus estimate for PHM’s 2024 sales and EPS implies an increase of 8.5% and 14%, respectively, from the prior-year reported levels.
Taylor Morrison Home Corporation (TMHC - Free Report) currently carries a Zacks Rank of 2. It has a trailing four-quarter earnings surprise of 9.4%, on average.
The consensus estimate for TMHC’s 2024 sales and EPS implies an increase of 7.1% and 6.2%, respectively, from the prior-year reported levels.
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KB Home's Q3 Earnings Meet, Stock Down on Lower FY24 Margins View
KB Home (KBH - Free Report) reported mixed results for third-quarter fiscal 2024 (ended Aug. 31, 2024). Its earnings met the Zacks Consensus Estimate, while revenues beat the same. On a year-over-year basis, both metrics increased.
Shares of this leading homebuilder dipped 6% in the after-market trading session on Tuesday. Investors’ sentiments might have been hurt by tepid gross and operating margins in the fiscal third quarter, as well as lowered expectations for the same.
The company noted that it experienced variability in demand across the quarter, with softening in late June through July. The trend was diverse as buyers continued to evaluate elevated mortgage rates and general economic concerns. Nonetheless, orders stabilized on improving rates.
KBH remains encouraged for its fiscal fourth quarter thanks to the recent strength in demand for its affordably priced personalized homes.
Leveraging the advantages of its Built to Order model, which provides buyers with choices, flexibility and affordability, the company is confident in its ability to effectively navigate potential fluctuations in housing market dynamics.
Earnings & Revenue Discussion
KBH reported adjusted earnings per share (EPS) of $2.04, which increased 13.3% from the year-ago quarter’s $1.80. The upside was mainly backed by higher net income and the favorable impact of repurchases over the past several quarters.
KB Home Price, Consensus and EPS Surprise
KB Home price-consensus-eps-surprise-chart | KB Home Quote
Total revenues of $1.75 billion topped the consensus mark of $1.73 billion by 1.5% and increased 10.4% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.746 billion grew 10.5% from the prior-year quarter’s level. The number of homes delivered was 3,631 units, up 7.6% from the year-ago period’s level. The reported figure was better than our projection of 3,565 units for the quarter. The average selling price, or ASP, also increased 3.1% from a year ago to $480,900. Our model had predicted ASP to be $481,500 for the fiscal third quarter.
Net orders slipped to 3,085 units from 3,097 reported in the prior year. The value of net orders was up 2% from the year-ago quarter to $1.54 billion. We projected orders to be 3,357 units or $1.68 billion for the fiscal third quarter. Absorption or monthly net orders per community decreased to 4.1 from 4.3.
The cancelation rate, as a percentage of gross orders, was 15% compared with 21% in the year-ago period.
The quarter-end backlog totaled 5,724 homes, down 1.8% from the year-ago figure of 7,008 units. Further, potential housing revenues from the backlog declined 14% from the prior-year period to $2.92 billion.
The average community count was up 5% to 251, and the ending community count rose 10% year over year to 254.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 80 basis points (bps) year over year to 20.7% due to unfavorable product and geographic mix. Our model anticipated housing gross margin to be 21% for the quarter.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — decreased 40 bps to 9.8%, reflecting increased operating leverage from higher housing revenues.
Homebuilding’s operating margin (excluding inventory-related charges) was down 50 bps to 10.9%, owing to lower housing gross margin. We expected operating margin to be 10.9% for reported quarter.
Financial Services: The segment's revenues declined 9.1% year over year to $6.63 million. The pretax income was $11 million, up 11% from a year ago, mainly due to increased equity in income of KBH’s mortgage banking joint venture.
Financial Position
KB Home had cash and cash equivalents of $374.9 million as of May 31, 2024, down from $727.1 million reported at the end of fiscal 2023. The company had a total liquidity of $1.46 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. No cash borrowings were outstanding under the revolver on Aug. 31, 2024.
As of the fiscal third-quarter end, the debt-to-capital ratio improved to 29.8% from 30.7% at the end of 2023.
In the fiscal third quarter, it repurchased approximately 1,869,292 shares of its outstanding common stock for $150 million. In fiscal 2023, KBH repurchased 9.2 million shares for $411.4 million. As of Aug. 31, 2024, it had $800 million in stock remaining under the repurchase authorization.
Fiscal 2024 Guidance
For the full year, it raised housing revenues expectation to the $6.85-$6.95 billion band from the $6.70-$6.90 billion expected earlier. The estimated figure is up from the fiscal 2023 level of $6.37 billion.
ASP is now estimated to be $490,000 (compared with the prior projection of $485,000-$495,000). The expected figure is up from $481,300 reported a year ago.
Assuming no inventory-related charges, KB Home now expects the housing gross margin between 21.1% and 21.2% (compared with 21-21.5% projected earlier), down from 21.4% reported a year ago.
Homebuilding’s operating margin (assuming no inventory-related charges) is now expected to be in the band of 11.1-11.2% compared with 11-11.4% expected earlier. In fiscal 2023, it was 11.3%.
SG&A expenses, as a percentage of housing revenues, are now likely to be 10% compared with 10.1% anticipated earlier. It still projects an effective tax rate of approximately 23%. The company expects the ending community count to be within 250-255.
Zacks Rank
KB Home currently carries a Zacks Rank #3 (Hold).
A Recent Peer Release
Lennar Corporation (LEN - Free Report) reported third-quarter fiscal 2024 results, wherein its earnings and revenues surpassed the Zacks Consensus Estimate.
On a year-over-year basis, revenues increased, given the company’s emphasis on maintaining a steady production rate to drive sales momentum. Lennar strategically utilized pricing, incentives, marketing expenditure and dynamic pricing insights to ensure steady sales volume despite fluctuations in interest rates. However, earnings fell by a cent from the year-ago period.
Key Picks
Some better-ranked stocks have been discussed below:
PulteGroup, Inc. (PHM - Free Report) currently carries a Zacks Rank of 2 (Buy). It has a trailing four-quarter earnings surprise of 10%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for PHM’s 2024 sales and EPS implies an increase of 8.5% and 14%, respectively, from the prior-year reported levels.
Taylor Morrison Home Corporation (TMHC - Free Report) currently carries a Zacks Rank of 2. It has a trailing four-quarter earnings surprise of 9.4%, on average.
The consensus estimate for TMHC’s 2024 sales and EPS implies an increase of 7.1% and 6.2%, respectively, from the prior-year reported levels.