KB Home delivered 19% fewer houses in its fiscal third quarter and saw net income fall 41% β and still posted what the company said was its first increase in order backlog in four years.
The Los Angeles-based builder reported revenues of $1.30 billion for the quarter ended Aug. 31, down 20% from a year earlier, with diluted earnings per share of $1.05 against $1.61. Net income fell to $65.3 million from $109.8 million. The results were released Sept. 22 after the close of trading and filed with the Securities and Exchange Commission.
“We are operating in a housing market that continues to be challenging, with conditions weakening since our June earnings report,” said Jeffrey Mezger, executive chairman. “Higher mortgage interest rates have further pressured affordability and, together with geopolitical uncertainty and broader economic headwinds, have caused many prospective buyers to be more cautious on purchasing a home.”
Borrowing costs have climbed further since the quarter closed on Aug. 31. The Mortgage Bankers Association reported on Sept. 23 that the average 30-year fixed contract rate had reached 7.12%, the highest since May 2024.
Margins compressed, orders fell, backlog turned
KB Home delivered 2,732 homes in the quarter at an average selling price of $473,000, down from $475,700. Housing gross profit margin narrowed to 16.5% from 18.2%; excluding inventory-related charges of $3.0 million, it was 16.8% versus an adjusted 18.9% a year ago. The company attributed the compression to “continued pricing pressure, higher relative land costs and reduced operating leverage.”
Selling, general and administrative expenses rose to 11.3% of housing revenues from 10.0%, which KB Home said reflected weaker operating leverage, partly offset by lower performance-based compensation costs and personnel reductions. Homebuilding operating income fell to $67.1 million from $131.2 million, a margin of 5.2% against 8.1%.
Net orders of 2,604 were down 12% year over year, and monthly net orders per community slipped to 3.1 from 3.8. The cancellation rate rose to 18% of gross orders from 17%.
The exception was backlog. Homes in backlog rose 2% to 4,398 and backlog value rose 3% to $2.05 billion β an increase the company said was its first in four years. Average community count grew 8% to 279 and the ending count rose 5% to 277, the product of what KB Home described as a significant number of new community openings over the past year.
President and Chief Executive Robert McGibney tied the quarter’s sequential margin improvement to a change in how the company sells. “We also made significant progress and have now achieved our goal of returning to a predominantly Built to Order business, with BTO homes representing nearly three-quarters of our deliveries in the third quarter, which contributed to our sequentially higher housing gross profit margin,” he said. Built-to-order means a buyer contracts before construction and selects finishes, as opposed to buying a completed spec house β a model that typically trades volume for price discipline.
Guidance held, land spending up, leverage higher
KB Home left its full-year outlook where it was. Mezger said the company continues “to expect our full-year deliveries, housing revenues and margins to be within the ranges we last provided.” Those ranges are 10,500 to 11,000 deliveries, housing revenues of $4.90 billion to $5.10 billion, a housing gross profit margin of 16.0% to 16.2% assuming no inventory charges, an SG&A ratio of 11.5% to 11.7%, and an effective tax rate of about 23%. Fourth-quarter guidance calls for 3,000 to 3,500 deliveries and an ending community count of 270 to 275.
The balance sheet shows a builder still buying land into a soft market. Investments in land and land development rose 40% in the quarter to $722.3 million, though the nine-month total fell 8% to $1.79 billion. Lots owned or under contract declined 5% to 61,581. Inventories rose 5% to $5.98 billion since the Nov. 30 fiscal year end.
That spending, plus buybacks, came with more debt. Notes payable stood at $2.11 billion against $1.69 billion at the fiscal year end, lifting the debt-to-capital ratio to 35.7% from 30.3% β and from 33.2% a year earlier. Total liquidity was $942.4 million, including $159.0 million of cash and $783.4 million available on the revolver, against $415.0 million drawn.
KB Home repurchased 900,000 shares for $50.0 million during the quarter, bringing nine-month buybacks to 3.1 million shares for $175.0 million, with $725.0 million left on the authorization. Book value per share was $62.56, up 4% year over year on roughly 60.8 million shares outstanding.
The report lands against a builder sector already signaling caution. The National Association of Home Builders’ confidence index fell to a one-year low in September, with two-thirds of builders offering sales incentives. KB Home has been adding storefronts through that stretch, including a North Las Vegas project it billed as its largest community in a decade. On our reading, the community count is the lever the company is pulling while per-community sales pace falls.
