KB Home KBH stock dipped 7.2% after it reported lackluster fiscal first-quarter 2025 results. The quarter’s earnings and total revenues missed the Zacks Consensus Estimate and tumbled year over year.
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The quarter’s result reflects the softness in the housing market as homebuyers are still navigating through affordability concerns due to high mortgage rates. Besides, the ongoing macroeconomic uncertainties and other regulatory changes in the country are adding to the instability of the housing market.
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, with a favorable average selling price (ASP) increase and expected improvements in the latter half of the calendar year 2025, the company’s prospects are likely to move upward.
KBH’s Earnings & Revenue Discussion
The company reported adjusted earnings per share (EPS) of $1.49, missing the Zacks Consensus Estimate of $1.56 by 4.5%. In the year-ago quarter, it reported an adjusted EPS of $1.76.
KB Home Price, Consensus and EPS Surprise
KB Home Price, Consensus and EPS Surprise
KB Home price-consensus-eps-surprise-chart | KB Home Quote
Total revenues of $1.392 billion also missed the consensus mark of $1.503 billion by 7.4% and dropped 5.2% on a year-over-year basis.
KB Homes’ Segmental Details
Homebuilding: The segment's revenues of $1.387 billion declined 5.1% from the prior-year quarter’s level of $1.462 billion. The number of homes delivered was 2,770 units, down 9% from the year-ago period’s level of 3,037 units. The reported figure was lower than our projection of 3,002 units for the quarter. The ASP increased 4.3% from a year ago to $500,700. Our model had predicted deliveries’ ASP to be $502,000.
Net orders declined 17% from the prior year to 2,772 units. The value of net orders was also down to $1.346 billion from the year-ago quarter’s value of $1.582 billion. We projected orders to be 3,325 units or $1.611 billion for the fiscal first quarter. Absorption or monthly net orders per community decreased to 3.6 from 4.6.
The cancellation rate, as a percentage of gross orders, was 16% compared with 14% in the year-ago period.
The quarter-end backlog totaled 4,436 homes, down from the year-ago figure of 5,796 homes. Further, potential housing revenues from the backlog declined 21% from the prior-year period to $2.202 billion.
The average community count was up 7% to 257 and the ending community count rose the same year over year to 255.
Within homebuilding, the housing gross margin (excluding inventory-related charges) contracted 130 basis points (bps) year over year to 20.2%. This downtrend was caused by higher relative land costs and homebuyer concessions, along with reduced operating leverage. Our model anticipated the housing gross margin to be 20.1% for the quarter.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — expanded 20 bps to 11%.
Homebuilding’s operating margin (excluding inventory-related charges) was 9.2%, down from 10.8%, owing to lower housing gross margin and reduced operating leverage. We expected the operating margin to be 9.4% for the reported quarter.
Financial Services: The segment's revenues declined 22% year over year to $4.7 million. The pre-tax income was $7.5 million, down 35% from a year ago. The downtrend was due to a lower volume of loan originations, largely due to fewer homes delivered.
KB Home’s Financial Position
KB Home had cash and cash equivalents of $267.8 million as of Feb. 28, 2025, down from $598 million reported at the end of fiscal 2024. The company had a total liquidity of $1.25 billion, including $981.7 million of available capacity under the unsecured revolving credit facility, with $100.0 million of cash borrowings outstanding.
As of the end of the first quarter of fiscal 2025, the debt-to-capital ratio was 30.5%, up from 29.4% at the end of fiscal 2024.
In the quarter, KBH repurchased 753,939 shares of its outstanding common stock for $50 million (or $66.32 per share). As of Feb. 28, 2025, it had $650 million in stock remaining under the repurchase authorization.
KB Homes Lowers Fiscal 2025 Guidance
For fiscal 2025, the company now expects housing revenues to be in the $6.60-$7 billion band (compared with prior expectations of $7-$7.50 billion). ASP is currently estimated to be in the range of $480,000- $495,000 compared with the prior expected range of $488,000-$498,000. 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 19.2% and 20% compared with the prior expected range of 20- 21%. 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 about 9.4%, down from the previously expected 10.7% 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 10.0-10.4% (compared with the prior expected range of 9.6-10%). 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.
KBH’s Zacks Rank & Peer Releases
KB Home currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Toll Brothers, Inc. TOL reported first-quarter fiscal 2025 (ended Jan. 31) results, with earnings and revenues missing the Zacks Consensus Estimate and decreasing on a year-over-year basis, respectively.
The company’s net income and EPS fell short due to impairments and a delayed joint venture property sale. Toll Brothers highlighted that while demand remained solid, the spring selling season had been mixed, with affordability constraints and growing inventories pressuring sales, especially at the lower end. Toll Brothers is adjusting pricing, incentives and spec starts at the community level to maintain balance.
PulteGroup Inc. PHM has reported remarkable fourth-quarter 2024 results, wherein adjusted earnings and total revenues handily beat the Zacks Consensus Estimate and grew year over year.
The quarter’s result reflects the company’s success in addressing the affordability issues of the housing market due to a still high mortgage rate. By implementing several operational changes, including targeted sales incentives and faster construction cycle times, it was able to drive its home sales and foster new orders. Also, the increase in the ASP of homes closed aided the quarter’s top-line growth. To foster homebuying into 2025, the company aims to continue executing the operational changes to gather sufficient sales backlog and inventory to cater to the demand trends.
Meritage Homes Corporation MTH reported fourth-quarter 2024 results, wherein earnings and total closing revenues topped the Zacks Consensus Estimate but declined year over year. This is the eighth consecutive quarter of earnings and revenue beat.
Meritage Homes had a strong 2024, driven by high demand for affordable, entry-level homes, which made up 91% of fourth-quarter sales. Operational efficiencies helped sustain profitability despite a decline in the ASP. Strategic land acquisitions, including Elliott Homes, expanded its future pipeline. Yet, challenges remain, including lower ASPs, decreased backlog and rising lot costs, which pressured margins.
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