It has been about a month since the last earnings report for KB Home (KBH Quick QuoteKBH - Free Report) . Shares have lost about 6.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is KB Home due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

KB Home's Q3 Earnings Meet, Lower FY24 Margin View

KB Home 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.

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.

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. 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. 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.

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 Aug. 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, KB Home has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

KB Home has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.