KB Home Gets A Lift From A Lower Bar

KB Home’s latest results showed a housing market that is still alive, still cautious, and still asking builders for help at the closing table. The homebuilder reported fiscal second-quarter revenue of $1.11 billion, down 27% from a year earlier, while diluted earnings fell to $0.43 per share from $1.50. Shares rose about 3% to 4% in Tuesday’s after-hours trading and were little changed Wednesday morning, as investors looked past the quarter’s weak spots and weighed whether enough bad news was already baked into the price.

The quarter was definitely not pretty. Home deliveries fell 23% to 2,395, and the average selling price dropped to $461,900 from $488,700 a year earlier. Net orders declined 4%, backlog fell 5%, and housing gross margin narrowed to 15.2% from 19.3%. That is the uncomfortable reality for builders right now. Buyers are still out there, but elevated mortgage rates and affordability pressure are forcing builders to balance volume against price, pushing just hard enough to move homes without giving away too much margin.

KB Home is trying to make the case that the reset is at least becoming more manageable. The company said homes under its Built to Order model represented 73% of net orders in the quarter, a shift management says should support steadier performance over time. It also repurchased $75 million of stock during the quarter and said it expects third-quarter deliveries of 2,600 to 2,800 homes, with housing revenue of $1.20 billion to $1.35 billion and gross margin of 16.0% to 16.6%, assuming no inventory-related charges.

That gives investors something to work with, but the housing market turbulence is far from over. KB Home narrowed its full-year outlook to housing revenue of $4.90 billion to $5.30 billion and deliveries of 10,500 to 11,000 homes. The quarter was good enough for a stock bounce, mostly because “good enough” had been moved closer to the floor. KB Home got a lift from a lower bar; now it has to prove buyers can come back without the company having to keep lowering prices.

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