KB Home’s Q3 results expected to benefit from built-to-order model, stable demand

KB Home (NYSE: KBH) has been resilient to challenges like high mortgage rates and the inflation-induced strain on family budgets, while benefitting from the recovery in the housing market. When the company reports third-quarter earnings, it is expected to deliver positive results.

A few weeks ago, KB Home’s stock climbed to an all-time high, and is currently trading sharply above its 12-month average price. Over the past few years, KBH has maintained an uptrend, outperforming the broad market quite often. The company recently declared a quarterly cash dividend of $.25 per share, payable on August 22, 2024, to stockholders of record on August 8.

Q3 Report on Tap

The Los Angeles-headquartered homebuilder will be reporting third-quarter results on Tuesday, September 24, at 4:10 pm ET. Market watchers are looking for earnings of $2.05 per share for the August quarter, compared to $1.80 per share in the year-ago quarter. The consensus sales forecast is $1.73 billion for Q3, which represents a 9% increase from the same period last year. In the trailing six quarters, both earnings and the top line consistently exceeded estimates.

KB Home’s target customers are mainly first-time and move-up buyers. Stable demand from young customers and the resilience of the broad housing industry bode well for the company.  Given the continued undersupply of new and resale homes, the near-term prospects look bright for homebuilders. The other positives for the industry are improving wages and favorable household formations, while uncertainties in mortgage rate trends remain a challenge. As far as pricing is concerned, KB Home is at an advantage due to its built-to-order model and healthy backlog.

From KB Home’s Q2 2024 earnings call:

“We are affordably positioned in our served markets with products that include features that we know buyers value based on our survey data. Our buyers can significantly influence their final sales price as they personalize their choice of lot, elevation, and selections in our design studio aligning their monthly payment with their budgets. While the majority of our business is built to order, we’ve always offered quick move-in homes in each of our communities. As a result, we are in a unique position to satisfy the majority of customers who value choice while also accommodating those buyers who prioritize a quicker move-in date.”

Mixed Q2

In the second quarter, sales declined 3% year-over-year to $1.71 billion, which is attributable mainly to seasonal factors. Meanwhile, Q2 net income increased to $168.4 million or $2.15 per share from $164.4 million or $1.94 per share in the comparable period of 2023. During the quarter, home deliveries declined while new orders increased modestly. At $483,000, the average selling price was up 1% in the May quarter.

The value of KB Home’s stock has almost doubled since October last year. The upswing continued this week and the shares traded up 5% on Friday afternoon.