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Return-Focused Growth Plan to Aid KB Home's (KBH) Q2 Earnings

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KB Home (KBH - Free Report) is slated to report second-quarter fiscal 2022 results (ended May 31) on Jun 22, after market close.

In the last reported quarter, its earnings lagged the Zacks Consensus Estimate by 3.3% but rose 44% from the year-ago quarter’s levels. The top line missed the consensus mark by 5.8% in the last reported quarter but increased 23% year over year.

The company's earnings topped analysts’ expectations in 24 of the trailing 27 quarters.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for the bottom line has remained stable in the past 60 days at $1.97 per share. The projection indicates a 31.3% increase from the year-ago quarter’s earnings of $1.50 per share. The consensus estimate for revenues is pegged at $1.61 billion, suggesting a rise of 11.4% from the prior-year quarter’s levels.

KB Home Price and EPS Surprise

 

KB Home Price and EPS Surprise

KB Home price-eps-surprise | KB Home Quote

 

Factors at Play

Revenues: KB Home’s housing revenues are expected to have increased in the fiscal second quarter from the year-ago quarter’s levels, given favorable housing market conditions in the United States. Also, a robust backlog level and a solid return-focused growth model are likely to add to growth.

The Zacks Consensus Estimate for the company’s Homebuilding revenues — including housing and land — is pegged at $1,779 million, indicating an increase of 23.9% from the year-ago period’s levels. Within Homebuilding, the consensus mark for housing revenues is pegged at $1,778 million, calling for a rise of 23.8% from the prior-year quarter’s tally. The same for land revenues is pegged at $1.5 million, indicating an increase from $0.03 million in the year-ago quarter. It expects housing revenues in the range of $1.55-$1.65 billion.

Higher pricing is expected to have been a major contributing factor. The consensus estimate for average selling price is $477K, indicating growth from $410K reported a year ago. For the quarter, the company expects an average selling price of $490,000.

The consensus estimate for homes delivered is pegged at 3,437 units, suggesting a fall of 1.9% from the year-ago quarter’s level.

Orders & Backlogs: A solid backlog level, a key indicator of significant growth opportunities, is likely to have been a positive. The consensus estimate for the backlog is 13,009 units, implying notable growth from 10,034 units reported in the prior year.

Yet, the consensus mark for new orders is currently pegged at 4,988 units, suggesting a 16% year-over-year decline.

Margins: Higher average sales and strong demand are likely to have expanded margins in the to-be-reported quarter. Although higher material and labor costs are likely to have put pressure on the bottom line, its initiatives like the Returns-Focused Growth Plan, Built-to-Order approach and aggressive investments in land acquisition and development are likely to have somewhat offset those headwinds.

The company expects the homebuilding operating income margin (excluding the impact of any inventory-related charges) to improve 14.3-14.7% for the quarter, suggesting an increase from 11.4% a year ago.

Assuming no inventory-related charges, KB Home expects fiscal second-quarter housing gross margin in the range of 24.4-25%. In the year-ago period, the metric was 21.5%. The SG&A expense ratio will be 10-10.5% of housing revenues compared with 10.1% reported in the year-ago period.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for KB Home this time around. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: The Earnings ESP for KB Home 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 #4 (Sell).

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model, have the right combination of elements to post an earnings beat for their respective quarters to be reported.

PotlatchDeltic Corporation (PCH - Free Report) has an Earnings ESP of +14.69% and carries a Zacks Rank #3.

PotlatchDeltic is expected to register a 44.4% decline in earnings for the quarter to be reported. PCH reported better-than-expected earnings in three of the last four quarters but missed on one occasion, with the average surprise being 7.2%.

Dream Finders Homes, Inc. (DFH - Free Report) has an Earnings ESP of +7.37% and a Zacks Rank #3.

Dream Finders is expected to register 54.8% growth in earnings for the quarter to be reported. The company reported better-than-expected earnings in two of the last four quarters and missed on two occasions, with a negative surprise of 15.2%, on average.

Thor Industries (THO - Free Report) has an Earnings ESP of +4.46% and a Zacks Rank #3.

Thor is expected to register 5.8% growth in earnings for the quarter to be reported. The company reported better-than-expected earnings in the last four quarters, with the average being 37.4%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.