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KB Home (KBH) to Report Q4 Earnings: What's in the Offing?

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KB Home (KBH - Free Report) is slated to report fourth-quarter fiscal 2020 (ended Nov 30, 2020) results on Jan 12, after market close.

In the last reported quarter, its earnings topped the Zacks Consensus Estimate by 66%. Revenues also surpassed the consensus mark in the fiscal third quarter by 11.6%. On a year-over-year basis, its earnings increased 13.7%, while revenues declined 13.9%.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings has increased 1.2% over the past 60 days to 87 cents per share. The estimate indicates a 33.6% decrease from the year-ago earnings of $1.31 per share. The consensus estimate for revenues is pegged at $1.11 million, suggesting a decline of 29% from the prior-year quarter.

KB Home Price and EPS Surprise

KB Home Price and EPS Surprise

KB Home price-eps-surprise | KB Home Quote

Factors to Note

Revenues: KB Home is expected to have generated lower earnings and revenues in the fiscal fourth quarter, mainly because of lower deliveries and margins. Also, shortage of building lots might have impacted sales in the quarter to be reported.

Nonetheless, lower mortgage rates and demand for affordable housing from multiple demographic groups are likely to have given a boost to its order growth. Focus on entry-level buyers and relaxed mortgage lending standards should have also benefited KB Home.

This is evident from the company’s data for September, as highlighted during fiscal third-quarter earnings call. Its net orders for the first three weeks of September were up 32% year over year. Cancellation also improved to 12% from 17% reported in the corresponding year-ago period.

Backed by the above-mentioned tailwinds, the Zacks Consensus Estimate for the company’s Homebuilding revenues (representing 99.7% of total revenues) — including housing and land — is pegged at $1,098 million, which indicates a 29.2% decrease from the year-ago period. Meanwhile, as stated during fiscal third-quarter earnings call, it expects fourth-quarter housing revenues within $1.05-$1.15 million.

The Zacks Consensus Estimate for home deliveries is 2,621 units, indicating a decline of 33.3% from 3,929 units reported a year ago. The company expects a greater proportion of deliveries from higher-priced communities. Meanwhile, average community count for the fourth quarter is likely to decline in mid-to-high single digits.

The Zacks Consensus Estimate for average selling price or ASP is $415,000, indicating growth of 5.6% from $393,000 reported a year ago. The company expects ASP in the range of $395,000-$415,000.

Financial Services revenues are expected to drop 25% year over year for the to-be-reported quarter to $4 million.

Orders & Backlogs: The consensus estimate for new orders is currently pegged at 3,158 units, suggesting a 13.7% year-over-year improvement. Nonetheless, backlogs are expected to be 2,540 units, implying growth of 40% from 1,814 units reported in the prior year.

Margins: Rising labor costs and land prices have been major concerns for the overall housing industry. To mitigate these costs and expenses-related headwinds, KB Home undertook various initiatives like the Returns-Focused Growth Plan, Built-to-Order approach, and aggressive investments in land acquisition as well as development. These actions are expected to have provided some support to its margins and bottom-line performance in the to-be-reported quarter.

The company projects housing gross margin within 20-20.4% for the fiscal fourth quarter, indicating an increase from 19.6% reported in the year-ago period. SG&A will likely be in the 10.8-11.2% range for the quarter, suggesting a rise from 9.1% a year ago. Fourth-quarter homebuilding operating margin, excluding inventory-related charges, is expected in the range of 9-9.4%. In the year-ago period, the metric was 10.7%.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for KB Home this time around. It doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

Earnings ESP: Its Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: KB Home currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks With Favorable Combination

Here are some companies in the broader construction space, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Acuity Brands Inc. (AYI - Free Report) has an Earnings ESP of +3.18% and a Zacks Rank #2.

Lennox International, Inc. (LII - Free Report) has an Earnings ESP of +4.17% and holds a Zacks Rank #3.

Owens Corning Inc. (OC - Free Report) has an Earnings ESP of +8.15% and holds a Zacks Rank #2.

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