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KB HOME (KBH)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered a strong finish: revenue grew 19% to $2.00B, diluted EPS rose 36% to $2.52, and margins expanded (housing gross margin 20.9%, homebuilding operating margin 11.5%), driven by faster build times and higher deliveries .
  • Net orders rose 41% YoY to 2,688 with monthly net orders per community at 3.5 and cancellations improved to 17% from 28%, signaling healthier demand despite rate volatility .
  • 2025 full-year guidance introduced at Q4 (housing revenue $7.0–$7.5B, gross margin 20.0–21.0%) was later reduced in March (housing revenue $6.60–$7.00B, gross margin 19.2–20.0%), reflecting muted early spring demand and higher land costs and concessions; management highlighted cost-control and backlog conversion as offsets .
  • Capital returns remain a catalyst: $100M of buybacks in Q4 and $350M in FY24 (6% of shares at start of year), with $700M authorization remaining at year-end to help support EPS and ROE .

What Went Well and What Went Wrong

What Went Well

  • “We had a strong finish to 2024… our higher revenues reflected an increase in deliveries, which were driven by faster build times,” with Q4 deliveries up 17% to 3,978 and ASP up 3% to $501,000 .
  • Backlog conversion improved materially: Q4 homes delivered represented a 69% backlog conversion vs. 49% a year earlier, aided by compressed cycle times; management targets ~4 months build time over time .
  • Strategic land investment and footprint expansion: $744M in Q4 and $2.8B in 2024, increasing lots to ~77,000 and opening Atlanta as a new de novo market, positioning for future growth and community count expansion .

What Went Wrong

  • Management missed internal sales goals in Q4 as mortgage rate volatility tempered pace late in the quarter; buyer hesitancy extended into early Q1 2025, prompting guidance conservatism .
  • Gross margin faces headwinds from higher relative land costs and concessions; Q1 2025 margin outlook was lower sequentially due to reduced operating leverage, even with cost reduction efforts (lumber, concrete) .
  • Backlog and backlog value declined sequentially and YoY (homes to 4,434; value to $2.24B), reflecting faster build times and deliveries outpacing orders; early Q1 net orders down 17% YoY before late-quarter adjustments .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$1.71B $1.75B $2.00B
Diluted EPS ($)$2.15 $2.04 $2.52
Housing Gross Profit Margin %21.1% 20.6% 20.9%
Homebuilding Operating Income Margin %11.1% 10.8% 11.5%
Homes Delivered (#)3,523 3,631 3,978
Average Selling Price ($)$483,000 $480,900 $501,000

Segment breakdown (Q4 2024):

  • Homes delivered: West Coast 1,295; Southwest 780; Central 1,080; Southeast 823 .
  • ASP: West Coast $706,300; Southwest $455,600; Central $355,200; Southeast $412,300; Total $501,000 .

KPIs and demand metrics:

KPIQ2 2024Q3 2024Q4 2024
Net Orders (#)3,997 3,085 2,688
Monthly Net Orders / Community5.5 4.1 3.5
Cancellation Rate (%)13% 15% 17%
Ending Backlog Homes6,270 5,724 4,434
Ending Backlog Value ($USD Billions)$3.12B $2.92B $2.24B
Average Community Count243 251 256
Ending Community Count247 254 258

Non-GAAP reconciliation (Q4 2024 vs Q4 2023):

MetricQ4 2023Q4 2024
Housing Gross Margin (GAAP)20.7% 20.9%
Adjusted Housing Gross Margin (ex inv.-related)20.8% 20.9%
Inventory-Related Charges ($MM)$1.2 $0.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Housing RevenuesFY 2025$7.00–$7.50B $6.60–$7.00B Lowered
Average Selling PriceFY 2025$488k–$498k $480k–$495k Lowered
Homebuilding Operating Income MarginFY 2025~10.7% (no inv.-related) ~9.4% (no inv.-related) Lowered
Housing Gross Profit MarginFY 202520.0%–21.0% (no inv.-related) 19.2%–20.0% (no inv.-related) Lowered
SG&A (% of Housing Revenues)FY 20259.6%–10.0% 10.0%–10.4% Raised
Effective Tax RateFY 2025~24% ~24% Maintained
Ending Community CountFY 2025~250 ~250 Maintained
Housing RevenuesQ1 2025N/A$1.45–$1.55B (call) Provided
ASPQ1 2025N/A~$501k (flat seq.) (call) Provided
Homebuilding Operating Income MarginQ1 2025N/A~9.5% (call) Provided
Housing Gross Profit MarginQ1 2025N/A20.0%–20.4% (call) Provided
SG&A (% of Housing Revenues)Q1 2025N/A10.5%–10.9% (call) Provided
Effective Tax RateQ1 2025N/A~23% (call) Provided

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Q4 2024 (Current)Trend
Affordability & Mortgage RatesBuyers resilient despite rate volatility; very strong monthly absorption (5.5) Demand variability; softening in late June–July as buyers evaluated elevated rates; improved in August Missed internal sales goals as rates tempered pace; 60% of net orders used mortgage concessions; early Q1 orders softer Softer momentum into early Q1; incentives persist
Build Times & Backlog ConversionCycle time reductions beginning; strong pace supports deliveries Continued improvements; backlog value down with faster conversion Build times -28% YoY; backlog conversion 69% vs 49% prior year; target ~4 months Sustained improvement
Land Investment & Community CountLand investment +64% YoY in H1; authorization for $1B buybacks/dividend raise; ending communities 247 Land investment nearly $850M in Q3; ending communities 254 $744M invested in Q4; ending communities 258; Atlanta de novo entry Scaling platform for 2025
Pricing & ConcessionsSG&A higher to support growth; ASP $483k; JV capture 86% Gross margin down on mix; JV capture up to 88% Held base prices; concessions consistent with past 4 quarters; direct costs down (lumber, concrete) Price discipline; targeted cost control
Tax Credits & Effective Tax RateETR ~23%; climate/IRS guidance noted as risk ETR 24.2% Fewer homes expected to qualify for IRS energy tax credits; FY25 ETR ~24% Slight tax headwind
Macro/Inventory by MarketLiquidity strong; backlog narrowing Backlog down; communities up Resale inventory ~3.5–4 months generally; higher in Austin/Jacksonville but KBH priced competitively Mixed market dynamics

Management Commentary

  • “At $2 billion, our total revenues were significantly higher year-over-year… earnings per diluted share at $2.52 grew 36%… our margins were healthy, expanding to just under 21% in gross and increasing to 11.5% in operating income.” — Jeffrey Mezger .
  • “Our net orders are 1,026 as compared to 1,170 in the comparable period of the prior year… we estimate that our net order comparison for the full 2025 1st quarter will be roughly flat.” — Jeffrey Mezger .
  • “Roughly 60% of our net orders [in Q4] having some form of mortgage concession… build times… about 5 months… progress toward our goal of 4 months.” — Rob McGibney .
  • “We invested $744 million in land… over $2.8 billion [in 2024]… increased our lot position by 37%… opening [a start-up division] in Atlanta.” — Jeffrey Mezger .
  • “We are forecasting… Q1 housing revenues $1.45–$1.55B… FY gross margin in a range of 20.0% to 21.0%… FY SG&A 9.6% to 10.0%.” — Jeff Kaminski .

Q&A Highlights

  • Backlog conversion approaching ~70% driven primarily by cycle time improvements; some tilt toward quick move-in inventory to meet buyer needs .
  • Absorption assumptions for early Q1: management expects to close the gap vs prior year with community openings; pace improvements not reliant on deep price cuts .
  • Gross margin range drivers: rates and operating leverage; sequential Q1 margin lower mainly due to reduced fixed-cost leverage vs Q4 .
  • Inventory landscape: pockets of higher resale inventory (Austin, Jacksonville) but KBH priced below median resale in Austin; most markets ~3.5–4 months resale .
  • Incentive strategy: maintained pricing discipline; concessions increased modestly late in Q4 as rates rose; avoided chasing sales with large price cuts .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 EPS and revenue were unavailable due to a temporary API limit; therefore, a beat/miss vs consensus cannot be determined at this time [GetEstimates error].
  • Given the March guidance reduction (revenue and margin ranges), sell-side models likely need to move lower on FY25 top-line and margin assumptions, reflecting muted early spring demand and higher land/concession mix .

Key Takeaways for Investors

  • Q4 execution strong on deliveries, EPS, and margins, supported by materially faster build times and efficient backlog conversion; operational discipline remains intact .
  • Demand health is mixed: Q4 net orders rose YoY with improved cancellations, but early Q1 orders were softer; ongoing mortgage-rate volatility necessitates continued use of concessions .
  • FY25 guidance reset lower in March (revenue, gross margin, operating margin), emphasizing a more cautious near-term outlook; watch spring absorption and community openings trajectory .
  • Cost actions and value engineering (lumber/concrete) aim to offset concessions and higher land costs; margin stabilization hinges on operating leverage and sales pace .
  • Share repurchases remain a significant capital allocation lever ($350M in FY24; $700M authorization remaining at FY24-end), supporting EPS and ROE even in a moderating growth environment .
  • Strategic land investments and new market entry (Atlanta) should sustain medium-term volume growth once demand normalizes; higher sellout cadence may cap year-end community count near ~250 in FY25 before growing again in early 2026 .
  • Monitoring items: rate path and mortgage spreads, incentive intensity, backlog conversion sustainability, regional resale inventory (Austin/Jacksonville), and IRS energy tax credit qualification impact on ETR .
Notes: Consensus estimates from S&P Global were unavailable due to an API limit, so estimate comparisons could not be included at this time.