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Why Is KB Home (KBH) Up 11.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for KB Home (KBH - Free Report) . Shares have added about 11.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.

KB Home's Q2 Earnings & Revenues Beat Estimates

KB Home reported second-quarter fiscal 2025 results. The quarter’s earnings and total revenues surpassed the Zacks Consensus Estimate. However, both metrics decreased on a year-over-year basis.

The quarter’s result reflects the softness in the housing market as homebuyers are still navigating through affordability concerns due to high mortgage rates. Owing to these market uncertainties and a lower net orders level at the end of the quarter, the company lowered its fiscal 2025 guidance.

Nonetheless, the company is focusing on reducing build times and construction costs as it continues to navigate the current environment. Although market conditions have softened, KBH remains focused on managing assets efficiently. Going forward, the company aims to maintain pricing clarity, enhance buyer value, and support margins and returns.

Earnings & Revenue Discussion

The company reported adjusted earnings per share (EPS) of $1.5, beating the Zacks Consensus Estimate of $1.45 by 3.5%. In the year-ago quarter, it reported an adjusted EPS of $2.15.

Total revenues of $1.53 billion also beat the consensus mark of $1.495 billion by 2.3%, but dropped 10.5% on a year-over-year basis.

Segmental Details

Homebuilding: The segment's revenues of $1.525 billion declined 10.4% from the prior-year quarter’s level of $1.702 billion. The number of homes delivered was 3,120 units, down 11% from the year-ago period’s level of 3,523 units. The ASP increased 1.2% from a year ago to $488,700.

Net orders declined 13% from the prior year to 3,460 units. The value of net orders was also down to $1.611 billion from the year-ago quarter’s value of $2.032 billion. Absorption or monthly net orders per community decreased to 4.5 from 5.5. The cancellation rate, as a percentage of gross orders, was 16% compared with 13% in the year-ago period.

The quarter-end backlog totaled 4,776 homes, down from the year-ago figure of 6,270 homes. Further, potential housing revenues from the backlog declined 27% from the prior-year period to $2.288 billion.

The average community count was up 5% to 254 and the ending community count rose 2% year over year to 253.

Within homebuilding, the housing gross margin (excluding inventory-related charges) contracted 150 basis points (bps) year over year to 19.7%. This downtrend was caused by lower prices, higher relative land costs and homebuyer concessions, along with reduced operating leverage.

In the quarter, selling, general and administrative expenses (SG&A), as a percentage of housing revenues, expanded 60 bps to 10.7%.

Homebuilding’s operating margin (excluding inventory-related charges) was 9%, down from 11.1%, owing to lower housing gross margin and reduced operating leverage.

Financial Services: The segment's revenues declined 41.3% year over year to $4.9 million. The pre-tax income was $8.2 million, down 38.5% from a year ago. The downtrend was due to lower insurance commissions revenues and equity in income of the company’s mortgage banking joint venture.

Financial Position

KB Home had cash and cash equivalents of $308.9 million as of May 31, 2025, down from $598 million reported at the end of fiscal 2024. The company had a total liquidity of $1.19 billion, including $881.7 million of available capacity under the unsecured revolving credit facility, with $200 million of cash borrowings outstanding.

As of the end of the second quarter of fiscal 2025, the debt-to-capital ratio was 32.2, up from 29.4 at fiscal 2024-end.

In the quarter, KBH repurchased 3,734,675 shares of its outstanding common stock for $200 million (or $53.55 per share). As of May 31, 2025, it had $450 million in stock remaining under the repurchase authorization.

Lowers Fiscal 2025 Guidance

For fiscal 2025, the company now expects housing revenues to be in the $6.30-$6.5 billion band (compared with prior expectations of $6.6-$7 billion). ASP is currently estimated to be in the range of $480,000-$490,000 compared with the prior expected range of $480,000-$495,000. In fiscal 2024, KBH reported housing revenues of $6.9 billion with an ASP of $486,900.

Assuming no inventory-related charges, the housing gross margin is now expected to be between 19% and 19.4% compared with the prior expected range of 19.2-20%. Last year, the company reported a housing gross margin of 21%. Homebuilding's operating margin (assuming no inventory-related charges) is now expected to be between 8.6% and 9%, down from the prior expectation of around 9.4% and 11.5% reported in fiscal 2024.

SG&A expenses, as a percentage of housing revenues, are now likely to be in the range of 10.2-10.6% (compared with the prior expected range of 10-10.4%). In fiscal 2024, SG&A expenses, as a percentage of housing revenues, were 10%.

It projects an effective tax rate of approximately 24%. The company still expects the ending community count to be within 250.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -18% due to these changes.

VGM Scores

Currently, KB Home has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock has a grade of C on the value side, putting it in the middle 20% for value investors.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise KB Home has a Zacks Rank #5 (Strong Sell). We expect a below 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 - Free Report) , has gained 6.1% over the past month. More than a month has passed since the company reported results for the quarter ended May 2025.

Lennar reported revenues of $8.38 billion in the last reported quarter, representing a year-over-year change of -4.4%. EPS of $1.90 for the same period compares with $3.38 a year ago.

Lennar is expected to post earnings of $2.14 per share for the current quarter, representing a year-over-year change of -45.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -6.1%.

Lennar has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.


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