Rafe Jadrosic

Rafe Jadrosic asked about current lot inflation and future trends, specifically for 2026, and if there's visibility on when costs might start to decline. He also inquired about the sequential increase in the midpoint of Q4 revenue guidance and delivery ASP, given flattish orders, and the drivers behind this improvement, especially since past delivery ASPs were below guidance due to incentives.

Answer

Hilla Sferruzza (EVP and CFO, Meritage Homes) stated that Meritage is not providing specific guidance on lot cost inflation for 2026, expecting it to continue or worsen slightly into 2026, with improvements starting in 2027-2028. Phillippe Lord (CEO, Meritage Homes) explained that past ASP misses were 100% due to incremental incentives. The Q4 higher delivery number is driven by community count growth, and any ASP change is due to the mix of communities, with only a modest assumption for increased year-end incentives.

Rafe Jadrosic inquired about KB Home's preliminary revenue outlook for fiscal year 2026, considering the shift back to the built-to-order (BTO) model and the current volatile environment. He also asked for clarification on the drivers behind the implied leverage or better-than-normal seasonality in the fourth-quarter SG&A guidance.

Answer

Jeffrey Mezger, Chairman, President & CEO, stated that specific 2026 guidance would not be provided but anticipated a solid year with improved affordability and increased community count, expecting margin improvement as the company shifts to BTO. Robert Dillard, EVP & CFO, explained that the Q4 SG&A improvement was due to a 15% year-over-year reduction in gross SG&A, driven by fixed cost reductions and compensation scheme adjustments, rather than operating leverage.