KB Home (NYSE: $KBH) released its third quarter fiscal 2024 results on Tuesday after markets closed. The homebuilding company saw its stock slide in pre-marketing trading after missing estimates.
KB Home Misses Estimates In Q3 Results
The company reported a 10% rise in revenue to $1.75 billion in the third quarter, beating estimates of $1.728 billion. Its third-quarter earnings rose 13% year over year to $2.04, below the expected $2.06 per share.
Other Financial Metrics
KB Home reported that the average home selling price fell to $480.90K from $483K the previous quarter. However, it was up 3% year over year from $466.3K the previous year.
The company reported a 5% YoY rise in homebuilding operating income to $189 million. Meanwhile, the homebuilding operating income margin fell to 10.8% from 11.3% a year ago and 11.1% the previous quarter. Its adjusted housing gross profit margin fell to 20.7% from 21.5% the previous year.
Net orders fell to 3,085 from 3,097 a year ago, and 3,997 the previous quarter. The company saw a rise in home deliveries to 3,631 from 3,375 a year ago, and 3,523 the previous quarter.
Commenting on the net order, CEO Jeffrey Mezger said, “Net orders were flat with the year-ago quarter. We experienced variability in demand across the quarter, with softening in late June through July, as buyers continued to evaluate elevated mortgage interest rates, and general economic concerns were rising.”
KB Home reported 5,724 in ending backlog homes compare to 7,008 the previous years. Its ending backlog was valued at $2.92 billion compared to $3.4 billion the previous year.
Ending backlog homes totaled 5,724, compared to 7,008. The ending backlog value was $2.92 billion, compared to $3.40 billion. Its ending community count increased 10% to 254 year over year, while the average community count for the third quarter grew 5% YoY to 251 and 3% from the previous quarter.
KB Home Balance Sheet
The company ended the quarter with $1.46 in total liquidity, while inventories rose 10% YoY to $5.65 billion. Its investments in land and land developments for the nine months ending this quarter increased 59% to $2.1 billion compared to $1.32 billion in the same period last year.
Lots owned by KB home or under contract increased 24% to 69,279, of which 58% were owned while 42% were under contract. In comparison, around 73% of its total lots were owned, while 27% were under contract a year ago.
Share Buyback Program
KB Home bought back $150 million worth of shares in the third quarter, bringing the total shares bought back in 2024 to $250 million. As of the end of the quarter, the company had $800 million remaining under its existing share buyback program.
KB Home Updates Full-Year Fiscal 2024 Guidance
KB Home lowered its guidance for fiscal 2024 to $6.85 billion to $6.95 billion from the previous forecast of $6.70 billion to $6.90 billion, above estimates of $6.81 billion at the midpoint. It now expects an average selling price of $490K from the previous guidance of $485K to $495K, above estimates of $88K at the midpoint.
KB Home narrowed its operating profit margin to 11.1% to 11.2% from the previous forecast of 11% to 11.4%. It expects a housing gross profit margin of 21.1% to 21.2%, down from the previous forecast of 21.1% to 21.5%. KB Home expects SG&A expenses as a percentage of housing revenue of 10%, down from the previous forecast of 10.1%.
KB Home Issues Q4 And Fiscal 2025 Guidance
During the earnings call, KB Home CFO Jeff Kaminski stated that for the fourth quarter, they expect revenue of $1.94 billion to $2.04 billion. They anticipate a $23K YoY increase in the average selling price to around $510K, driven by more deliveries from the West Coast region.
KB Home expects a homebuilding operating income margin of 11.4% to 11.8% and a housing gross profit margin of 21% to 21.4%. In 2025, the company expects full-year revenue of around $7.5 billion.
KB Home (KBH) Shares Dip After Q3 Results
Following the Q3 results, where the average home selling price fell from the previous quarter, net order remained flay YoY, and earnings missed estimates, KBH shares were down 6.50% in premarket trading to $81.75.
Year to date, KB Home stock is up 39.98%, while in the past 12 months, it is up 89.24%. Over the past month, KBH shares have gained 1.9% compared to the 1.5% gain of the S&P 500 in the same period.
Analysts give KBH shares an overall hold rating. They forecast a wide range of price targets for the stock, ranging from a high of $90 to a low of $65. Their average price target of $77.57 is an 11.28% downside based on the last closing price of $87.43 per share.
Should You Add KBH To Your Portfolio?
KB Home has outperformed the market this year. However, its recent quarter came in below expectations. In the upcoming quarter, analysts expect an EPS of $3.10, representing a 6.9% increase YoY. The Fed’s new program of rate cuts is likely to prompt more people to purchase new homes in 2025 going forward, which could potentially benefit KBH. Consequently, buying the dip could potentially pay off in the long term.
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