It has been about a month since the last earnings report for KB Home (KBH Quick QuoteKBH - Free Report) . Shares have added about 4.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is KB Home due for a pullback? 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 drivers.

KB Home Q1 Earnings & Revenues Beat Estimates

KB Home reported better-than-expected results in first-quarter fiscal 2023 (ended Feb 28, 2023), defying the challenging housing market conditions. Its earnings and revenues beat the Zacks Consensus Estimate.

Pertaining to the quarterly results, Jeffrey Mezger, chairman, president and chief executive officer, stated, “Our revenues were at the high-end of our guidance range and we outperformed both our operating and gross margin expectations. In addition, we further expanded our book value per share, which grew to $44.80, up 27% from a year ago.”

Looking forward, Mezger added, “With our Board of Directors approving a $500 million share repurchase authorization, we have the flexibility to continue to return cash to stockholders, supporting our future earnings per share and return on equity."

Earnings & Revenue Discussion

KBH reported adjusted earnings of $1.45 per share, which topped the consensus estimate of $1.05 by 38.1%. In the year-ago period, the company reported earnings of $1.47 per share.

Total revenues of $1.384 billion also beat the consensus mark of $1.31 billion by 5.9% but dropped by a meager 1% on a year-over-year basis.

Segmental Details

Homebuilding: The segment's revenues of $1.379 billion decreased 1.1% from the prior-year quarter. The number of homes delivered of 2,788 units was down 3% from the year-ago period. The average selling price, or ASP, increased 2% from a year ago to $494,500.

Net orders declined 49% to 2,142 units from the prior year. The value of net orders also fell a whopping 53% from the year-ago quarter to $1 billion.

The cancelation rate, as a percentage of gross orders, was 36% compared with 11% a year ago. Quarter-end backlog totaled 7,016 homes, down 41% from the year-ago figure. Further, potential housing revenues from backlog declined 42% from the prior-year period to $3.31 billion.

Nevertheless, the average community count and the ending community count rose 18% and 23% from a year ago to 251 and 256, respectively.

Within homebuilding, the adjusted housing gross margin declined 60 basis points (bps) year over year to 21.8%. The decrease was due to more construction costs as well as the impacts of higher homebuyer concessions, given a softening housing market.

Selling, general and administrative expenses, as a percentage of housing revenues, improved 10 bps from the year-ago figure to 10.1%, reflecting lower expenses on approximately the same revenues. Homebuilding’s operating margin (excluding inventory-related charges) was down 50 bps to 11.7%.

Financial Services: The segment's revenues rose 24.6% year over year to $5.8 million. Pretax income of $6 million, down from $8.4 million reported a year ago.

Financial Position

KB Home had cash and cash equivalents of $260.1 million as of Feb 28, 2023, down from $328.5 million at fiscal 2022-end. The company had a total liquidity of $1.24 billion, including $983 million of available capacity under the unsecured revolving credit facility.

As of the fiscal first-quarter end, the debt-to-capital ratio was 32.6%, down from 33.4% a year ago.

In first-quarter fiscal 2023, it repurchased approximately 2 million shares of its outstanding common stock for $75 million.

2Q23 Guidance

The company expects housing revenues of $1.35-$1.5 billion, whereas it reported $1.71 billion in the year-ago quarter. ASP is likely to be $480,000, suggesting a decline from $494,300 reported a year ago. The homebuilding operating margin (assuming no inventory-related charges) is expected to be between 9.5% and 10.5%. This compares unfavorably with the year-ago figure of 15.4%.

Assuming no inventory-related charges, KB Home expects housing gross margin of 20-21%, whereas it reported 25.3% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10.3-10.8% (up from the year-ago figure of 9.8%). It projects an effective tax rate of 24%. The company expects average community count improvement of 15-20%.

FY23 Guidance

For the full year, it anticipates housing revenues of $5.20-$5.90 billion, indicating a decline from the fiscal 2022 reported level of $6.88 billion. ASP is likely to be $480,000-$490,000, whereas it reported $500,800 a year ago.

The homebuilding operating margin (assuming no inventory-related charges) is expected between 10% and 11%.

Assuming no inventory-related charges, KB Home expects housing gross margin of 20.5-21.5%, whereas it reported 24.8% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10-11%. It projects an effective tax rate of 24%. The company expects average community count improvement in the low-double-digit percentage range.

Return on equity is expected in the low-double digits.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 34.48% due to these changes.

VGM Scores

Currently, KB Home has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise KB Home has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

KB Home belongs to the Zacks Building Products - Home Builders industry. Another stock from the same industry, Lennar (LEN Quick QuoteLEN - Free Report) , has gained 8.2% over the past month. More than a month has passed since the company reported results for the quarter ended February 2023.

Lennar reported revenues of $6.49 billion in the last reported quarter, representing a year-over-year change of +4.6%. EPS of $2.12 for the same period compares with $2.70 a year ago.

For the current quarter, Lennar is expected to post earnings of $2.28 per share, indicating a change of -51.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +4.9% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Lennar. Also, the stock has a VGM Score of B.