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KB HOME (KBH)·Q3 2025 Earnings Summary

Executive Summary

  • KB Home delivered a clean beat: revenue $1.62B vs $1.586B consensus* and EPS $1.61 vs $1.494 consensus*, with adjusted housing gross margin (ex-charges) of 18.9%, above guidance high end, on stronger cost control and faster build times .
  • Mix and pricing discipline drove margins despite softer YoY volume; deliveries fell 7% YoY to 3,393 and housing gross margin was 18.2% GAAP; adjusted to 18.9% excluding $11.3M inventory charges .
  • Management pivoting back to built‑to‑order (BTO) (~70% target) from ~50% currently; BTO carries 250–500 bps higher margins, with build times down to 130 days (BTO ~122 days), underpinning 2026 trajectory .
  • FY25 guidance trimmed again: housing revenue $6.10–$6.20B (from $6.30–$6.50B in Q2 and $6.60–$7.00B in Q1); Q4 guide: $1.6–$1.7B revenue, 18.0–18.4% housing GM, 9.3–9.7% SG&A, 8.5–8.9% HB OI margin .
  • Capital returns remain a key pillar: $188.5M repurchased in Q3 ($438.5M YTD) and new $1B authorization announced after quarter; Q4 buybacks expected at $50–$150M, reinforcing EPS/book value accretion .

Values with * retrieved from S&P Global.

What Went Well and What Went Wrong

  • What Went Well

    • Cost execution and cycle times: adjusted housing GM 18.9% (ex‑charges) beat the high end of guidance; build times fell to 130 days (BTO ~122) and direct costs declined ~2% q/q and ~3% y/y on Q3 starts .
    • Pricing strategy: Transparent base pricing over incentives stabilized demand; 70% of communities had steady or higher prices in Q3, aiding margin resilience .
    • Shareholder returns: Repurchased 3.3M shares for $188.5M at $57.12 (11% YTD share reduction), taking book value/share to $60.25 (+11% y/y); added a new $1B authorization post‑quarter .

  • What Went Wrong

    • Volume softness: Deliveries down 7% y/y to 3,393 and net orders down 4% y/y to 2,950; absorption 3.8/month/community vs 4.1 y/y; cancellation rate rose to 17% (15% y/y) .
    • Margin pressure vs prior year: GAAP housing GM 18.2% (–240 bps y/y) on price reductions, higher relative land costs, and mix; adjusted housing GM 18.9% (–180 bps y/y) .
    • Backlog/ASP headwinds: Backlog units/value fell to 4,333/$1.99B (vs 5,724/$2.92B y/y); total ASP dipped to $475.7K with regional mix shift (Southeast/Boise/Seattle) weighing .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($B)$1.392 $1.530 $1.620
Diluted EPS ($)1.49 1.50 1.61
Housing Gross Margin (%)20.2% 19.3% 18.2%
Adjusted Housing GM (%)20.3% 19.7% 18.9%
SG&A (% of housing rev)11.0% 10.7% 10.0%
HB Operating Margin (%)9.2% 8.6% 8.1%
KPIsQ1 2025Q2 2025Q3 2025
Deliveries (Units)2,770 3,120 3,393
ASP ($)500,700 488,700 475,700
Net Orders (Units)2,772 3,460 2,950
Cancellation Rate (%)16% 16% 17%
Backlog (Units/$B)4,436 / $2.202 4,776 / $2.288 4,333 / $1.989
Avg Community Count257 254 259
Ending Community Count255 253 264
Actual vs ConsensusQ1 2025Q2 2025Q3 2025
Revenue ($B)$1.392 vs $1.499* $1.530 vs $1.505* $1.620 vs $1.586*
EPS ($)1.49 vs 1.577* 1.50 vs 1.461* 1.61 vs 1.494*

Values with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Housing RevenuesFY25$6.30–$6.50B (Q2) vs $6.60–$7.00B (Q1) $6.10–$6.20B (Q3) Lowered (again)
ASPFY25$480–$490K (Q2) ≈$483K (Q3) Maintained/Narrowed
HB Operating Margin (ex-charges)FY258.6%–9.0% (Q2) ≈8.9% (Q3) Maintained (~mid)
Housing GM (ex-charges)FY2519.0%–19.4% (Q2) 19.2%–19.3% (Q3) Slightly Raised Mid
SG&A (% of housing rev)FY2510.2%–10.6% (Q2) 10.2%–10.3% (Q3) Narrowed Lower
Effective Tax RateFY25~24% (Q2) ~23% (Q3) Slightly Lower
Ending Community CountFY25~250 (Q2) ~260 (Q3) Raised
Housing RevenuesQ4’25—$1.6–$1.7B (Q3 call) New
ASPQ4’25—$465–$475K (Q3 call) New
Housing GM (ex-charges)Q4’25—18.0%–18.4% (Q3 call) New
SG&AQ4’25—9.3%–9.7% (Q3 call) New
HB Operating Margin (ex-charges)Q4’25—8.5%–8.9% (Q3 call) New
DividendQ4’25—$0.25/shr declared (pay 11/26/25) Announced
Share RepurchasesQ4’25—$50–$150M expected (Q3 call) Announced
Repurchase AuthorizationOngoing—New $1B authorization (10/27) Expanded

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Demand & AffordabilityQ1: “Muted” demand; repriced communities mid‑Feb to restore value . Q2: Market “softened” though execution improved .Stable demand through quarter; ~60 bps mortgage rate decline → ~$30K added purchasing power at avg ASP .Improving affordability; demand stable.
Pricing & IncentivesFocus on transparent pricing/value over incentives (Q1–Q2) .70% of communities stable/increasing prices; not chasing volume in seasonally slow Q4 .Disciplined pricing; selective promotions.
Built‑to‑Order MixOptimization focus; no explicit mix targets (Q1–Q2) .Pivot back to ~70% BTO from ~50%; BTO margins +250–500 bps vs spec .Positive shift to higher‑margin BTO.
Build Times & CostsEmphasis on execution; began lowering build times/costs (Q2) .Build times 130 days; BTO ~122; direct costs –2% q/q, –3% y/y on Q3 starts .Continued improvement.
Land & LotsQ1 lots 78K; heavy land spend; later scaled back (Q2) .Canceled ~6,800 lots; land prices easing modestly; Q3 land spend $514.1M (–39% y/y) .More selective; better terms.
Capital ReturnsQ1 $50M, Q2 $200M buybacks .Q3 $188.5M; expect $50–$150M in Q4; new $1B authorization (post‑quarter) .Sustained returns; ample capacity.

Management Commentary

  • “We achieved solid financial results in our third quarter, meeting or exceeding our guidance ranges... as we continued to make meaningful progress in reducing both our build times and costs to build.” – Jeffrey Mezger, CEO .
  • “As our built‑to‑order mix grows, we believe it will support a higher gross margin as these homes currently generate a gross margin that is 250 to 500 basis points higher than our inventory homes.” – Jeffrey Mezger, CEO .
  • “Further improving our build times was another area of strong execution... a 10‑day reduction sequentially to 130 calendar days… direct costs ~2% lower sequentially and ~3% lower year over year on our homes started during the third quarter.” – Rob McGibney, President & COO .
  • “We reported net income of $110 million, or $1.61 per diluted share… We expect Q4 housing revenues between $1.6 billion and $1.7 billion… housing gross profit margin (ex‑charges) between 18% and 18.4%.” – Rob Dillard, CFO .

Q&A Highlights

  • ASP and margins: Sequential order ASP pressure driven largely by regional mix (more Southeast/Boise/Seattle); management emphasized no read‑through to margin degradation as cost actions offset pricing .
  • Demand vs rates: 60 bps mortgage rate decline boosted affordability ($30K purchasing power) but conversion lagged as buyers adopt wait‑and‑see; BTO “float‑down” option positioned to capture future rate declines .
  • BTO margin uplift: BTO margins exceed spec by 250–500 bps; shift back toward ~70/30 BTO/spec expected into early 2026, supporting margin trajectory .
  • SG&A and Q4 cadence: SG&A improvement reflects fixed cost actions and compensation cadence, not pure operating leverage, aiding Q4 guide .
  • Regional updates: Strength in Inland Empire, North Bay/Central Valley, Las Vegas, Houston, Charlotte; challenges in coastal CA, Seattle (improving), Denver; Florida/Texas stabilizing after targeted price resets and cost reductions .

Estimates Context

  • Q3 beats: Revenue $1.62B vs $1.586B consensus* and EPS $1.61 vs $1.494 consensus*; gross margin outperformed internal guidance high end (adjusted 18.9%) .
  • Recent pattern: Q2 also beat on both revenue ($1.530B vs $1.505B*) and EPS (1.50 vs 1.461*); Q1 missed both metrics vs consensus, reflecting earlier demand softness* .
  • Q4 setup: Consensus revenue ~$1.663B* sits within Q4 guide of $1.6–$1.7B; consensus EPS ~$1.79* aligns with margin/SG&A guide .

Values with * retrieved from S&P Global.

Key Takeaways for Investors

  • Execution trumped softer demand: faster cycle times and lower direct costs lifted adjusted GM above guide, enabling a clean print and beat vs consensus .
  • Strategic pivot to BTO should structurally lift margins into 2026; near‑term volume may be tempered but mix and pricing discipline support profitability .
  • FY25 guidance trimmed again on orders/backlog, but Q4 guide brackets Street; watch Q4 absorption and Q1’26 order trends as key inflection indicators .
  • Capital return remains a strong backstop (Q4 buybacks $50–$150M; new $1B authorization), driving EPS/book value accretion even in flat revenue scenarios .
  • Regional mix and land costs are the main margin headwinds; ongoing cost reductions and measured land spend (easing prices/terms) mitigate risk .
  • Liquidity is ample ($1.16B) with debt/cap ~33%, supporting flexibility through the pivot and potential demand upswing as affordability improves .
  • Trading lens: Focus on updates to BTO mix, cost trajectory, and early‑2026 community count ramp; any sustained rate relief could accelerate orders given the BTO “float‑down” offering .

Appendix: Additional Context

  • Q3 Non‑GAAP reconciliation: inventory‑related charges $11.3M; GAAP housing GM 18.2% vs adjusted 18.9% .
  • Backlog trajectory: Units/value declined to 4,333/$1.99B from 4,776/$2.29B in Q2 and 4,436/$2.20B in Q1 .
  • Buyback impact: Weighted average diluted shares down ~12% y/y in Q3, boosting per‑share metrics despite lower net income .