KB HOME (KBH)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 revenue and EPS modestly beat S&P Global consensus: $1.53B vs $1.51B and $1.50 EPS vs $1.46; beats driven by faster build times and cost controls despite softer demand and pricing pressure * *.
• FY 2025 guidance was lowered (housing revenues to $6.30–$6.50B; margins trimmed), reflecting weaker spring demand and mix; Q3 2025 quarterly guidance introduced with lower ASP and margin assumptions .
• Operational execution improved: cycle times fell to ~140 days (132 days BTO), direct costs -3.2% YoY, SG&A at low end; backlog conversion supported by faster builds .
• Orders decelerated in April/May; absorption fell to 4.5/month/community (vs 5.5 LY), cancellations up, backlog value -27% YoY; municipal delays pushed openings, weighing on net orders .
• Capital allocation pivot: $200M buyback at ~$53.55/share (below book value $58.64); management plans $100–$200M buybacks in Q3, creating a near-term catalyst alongside guidance reset .

What Went Well and What Went Wrong

What Went Well

• Adjusted housing gross margin (19.7%) exceeded guided range; SG&A ratio (10.7%) came in at the low end; deliveries beat implied plan on shorter cycle times .
• Cost discipline: direct construction costs -3.2% YoY on homes started; lumber and tariff-related increases largely held off; several divisions building at or near 120–100 day targets .
• Shareholder returns: repurchased 3.73M shares for $200M at $53.55/share; book value/share rose to $58.64 (+10% YoY) .

Quotes:

• “Our team is producing improvements in two key areas, lowering our build times and reducing direct construction costs, helping to strengthen our business.” — CEO Jeffrey Mezger .
• “We exceeded our delivery expectations... build times... are now back to pre-pandemic levels.” — CEO Jeffrey Mezger .

What Went Wrong

• Demand softness: monthly absorption fell to 4.5 vs 5.5 LY; orders declined 13% YoY; cancellations rose to 16% (vs 13%); backlog homes and value down materially YoY .
• Margin pressure: housing gross margin fell to 19.3% (21.1% LY) on price reductions, higher relative land costs, mix, and reduced operating leverage .
• Municipal delays: utility sign-offs and COs delayed grand openings; management estimates “a couple hundred” missed sales due to openings slipping into late Q2/Q3 .

Financial Results

Segment breakdown (Q2):

KPIs:

Guidance Changes

FY 2025 Guidance Revisions:

Q3 2025 Quarterly Guidance:

Earnings Call Themes & Trends

Management Commentary

• Strategic positioning: “Though market conditions have softened, we remain consistent in our focus on optimizing our assets... maintaining pricing transparency and enhancing margins and returns.” — CEO Jeffrey Mezger .
• Guidance rationale: “With market conditions having softened... resetting our revenue expectation is appropriate.” — CEO Jeffrey Mezger .
• Capital returns: “Repurchasing shares at a price below book value... improves ROE and increases book value per share.” — CFO Rob Dillard .
• Operations: “Build times... are now back to pre-pandemic levels... goal of 120 days.” — CEO Jeffrey Mezger ; “Direct costs... 3.2% lower YoY... homes started in May lowest cost per sq ft YTD.” — President/COO Rob McGibney .

Q&A Highlights

• SG&A discipline: Management is adjusting headcount and targeting eventual sub-10% SG&A ratio at current revenue levels; near-term increases reflect lower operating leverage .
• Gross margin cadence: Lower in Q3 (18.1–18.7%) with operating leverage lifting Q4 by ~40bps; pressure from price, land costs, and mix partly offset by construction cost reductions .
• Backlog conversion and closings: Faster build times to drive higher backlog turnover; need ~2,500 additional sales to hit FY deliveries; ~2,800 unsold homes in production provide visibility .
• Pricing/incentives competitiveness: Base price strategy vs competitors’ incentives; customers respond to transparent value; >50% communities saw price moves (avg reductions varied by market) .
• Land pipeline optimization: Walked away from ~9,700 controlled lots failing return hurdles; expecting sellers to first extend time/terms before price relief appears .
• Broker attach and commissions: ~70% broker participation; ~2% commissions typical; NAR settlement had transient impact .

Estimates Context

Values retrieved from S&P Global.*

Implications: modest beats on both EPS and revenue, but magnitude small; with FY guide lowered, Street estimates for 2H (and FY) likely to reset down, especially margins and ASP, while buybacks may cushion EPS trajectories .

Key Takeaways for Investors

• Results vs Street: Small top-line and EPS beats; however, lower FY revenue and margin guidance is the dominant narrative, likely driving estimate cuts and sentiment reset * *.
• Margin trajectory: Near-term compression from price/mix and higher relative land costs; operating leverage expected to improve margins sequentially into Q4; watch gross margin delivery against guide .
• Execution: Cycle-time reductions and cost controls are tangible offsets; if build times reach ~120 days, backlog conversion and cash cycle should further improve .
• Demand signals: April/May softness and higher cancellations, plus municipal delays, suggest cautious order outlook; monitor absorption pace and resale inventory trends in flagged markets (e.g., Sacramento, Seattle, parts of FL/TX/CO) .
• Capital allocation: Aggressive buybacks below book value create EPS support and ROE accretion; near-term trading catalyst as management targets $100–$200M in Q3 repurchases .
• Mix shift: Strategic push back to 70–75% BTO should aid structural margins over time; track spec inventory levels and BTO progression .
• Risk watch: Affordability and variable mortgage rates, regional resale competition, and land/improvement cost inflation remain key headwinds; guidance implies conservative stance .