Despite challenges, KB Home (KBH) remains confident on housing market outlook

Shares of KB Home (NYSE: KBH) were down over 2% on Thursday. The stock has dropped 29% over the past 12 months. The company reported its earnings results for the fourth quarter of 2022 a day ago, wherein both revenue and earnings missed expectations. However, KB still remains confident about the long-term outlook of the housing market.

Quarterly performance

In the fourth quarter of 2022, revenues increased 16% year-over-year to $1.94 billion but fell short of market estimates. Net income increased 24% to $216.4 million while EPS grew 29% to $2.47 compared to the previous year. However, EPS missed expectations.

Trends

KB Home continues to face a challenging environment as high mortgage rates, inflation, and economic uncertainty have made homebuyers more cautious since the middle of last year. Due to a drop in demand caused by these factors, the company saw its net orders in Q4 2022 decline to 692 from 3,529 in the same period last year. Net order value decreased to $362.7 million from $1.77 billion last year.

During the fourth quarter, KB Home focused mostly on delivering its large backlog and protecting its margins rather than look to generate new sales. In Q4, homes delivered increased 3% to 3,786 while average selling price rose 13% to $510,400. KB will continue to focus on these deliveries as it holds a backlog of over 7,600 homes, which represents around $3.69 billion of future revenues.     

Based on the market dynamics and backlog levels in each community, the company plans to get more aggressive with its pricing ahead of the Spring selling season in order to acquire new orders. It is also looking for ways to reduce its direct construction costs and build times in order to offset the impact of pricing adjustments.

KB Home plans to moderate its land investments until market conditions improve but it believes it is well-positioned to navigate the current environment. The company remains confident in the long-term outlook of the housing market due to favorable demographics and a prolonged undersupply of homes.

Outlook

For the first quarter of 2023, KB Home expects housing revenues to range between $1.25-1.40 billion and average selling price to range between $490,000-500,000. Average community count is expected to be up 15-20%. For the full year of 2023, housing revenues are expected to range between $5-6 billion.  

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