KB Home Q3 Results Due Amid Margin Compression

KB Home (KBH) will report its fiscal third-quarter results, ended August 31, on September 22 after market close. According to data from GN stocks/earnings-beat, the company is expected to deliver adjusted earnings per share of 88 cents, a 45.3% drop from the $1.61 recorded in the same quarter last year. Total revenues are projected at $1.29 billion, representing a 20.2% year-over-year decrease. In the most recently reported period, adjusted EPS met consensus estimates but fell 71.3% annually, while total revenues exceeded expectations by 2% despite a 27% annual decline.

The company’s guidance for the current quarter indicates housing revenues will land between $1.2 billion and $1.35 billion, down from $1.61 billion in the prior year. Home deliveries are expected to range from 2,600 to 2,800 units, a reduction from the 3,393 units delivered in the year-ago quarter. This contraction in volume and price is attributed to affordability constraints, elevated mortgage rates, and cautious consumer sentiment, which have collectively weighed on housing demand.

Margin Pressure From Costs

Profitability metrics face headwinds from pricing pressures and higher relative land costs. KB Home expects adjusted housing gross margin to fall within a 16% to 16.6% range, a sharp decline from 18.9% in the previous year. Material cost increases, particularly in lumber, have further squeezed profitability. While the shift to a built-to-order model aims to improve operating leverage, these cost factors have limited the benefit, resulting in a projected 260 basis point year-over-year drop in gross margin.

Operating Expenses Rise

Selling, general, and administrative expenses are anticipated to consume between 11.3% and 11.9% of housing revenues, up from 10.7% in the year-ago quarter. The company attributes the sequential improvement expected in the second half of the year to increased volume and higher revenues. However, for the current quarter, the SG&A ratio is projected to rise by 130 basis points year-over-year, reflecting the challenges of maintaining efficiency amid lower delivery volumes and market pressures.

Backlog Growth Offsets Order Slips

New home orders are expected to decline 3.6% year-over-year to approximately 2,843 units, reflecting cautious buyer behavior. Despite this, the company’s backlog is projected to grow 6.9% to 4,633 units, up from 4,333 units in the prior year. This sequential growth in backlog is supported by a rising mix of built-to-order deliveries and shorter build times, which help stabilize delivery activity even as initial order activity softens.