Categories Analysis, Industrials

KB Home (KBH): A look at how the homebuilder performed in Q4 2023

The company expects housing revenues of $1.4-1.5 billion for Q1 2024

Shares of KB Home (NYSE: KBH) were down over 2% on Thursday. The stock has gained 43% in the past three months. The company reported its earnings results for the fourth quarter of 2023 a day ago, delivering revenue and profits that were lower on a year-over-year basis but better than estimates. The homebuilder anticipates improved housing market conditions in 2024 along with favorable trends in the supply chain. Here’s a look at its Q4 performance:

Better-than-expected results

KB Home reported revenue of $1.67 billion for the fourth quarter of 2023, down 14% from the same period last year. Earnings decreased 25% to $1.85 per share in Q4 versus last year. Despite the year-over-year declines, both the top and bottom line numbers surpassed projections of $1.62 billion and $1.70 per share, respectively.

Business performance

In Q4, KB Home saw homes delivered decrease 10% YoY to 3,407. Average selling price was also down 4% to $487,300 due to mix shifts as well as impacts from pricing adjustments and homebuyer concessions. These factors led to a 14% drop in homebuilding revenue which totaled $1.66 billion for the fourth quarter.

Price reductions and concessions impacted margins as well in the quarter. Adjusted gross profit margin dropped to 20.8% in Q4 from 23.9% last year, driven by price decreases, homebuyer concessions and higher construction costs.

On the other hand, net orders for the quarter more than doubled YoY to 1,909 and net order value doubled to $932.6 million, reflecting improved demand and a lower cancellation rate. Ending backlog totaled 5,510 homes.

Outlook

On its quarterly conference call, KB Home stated that it anticipates improved housing market conditions and continued favorable supply chain trends for the first quarter and full year of 2024. Based on this, the company expects housing revenues of $1.4-1.5 billion for Q1 2024 and $6.4-6.8 billion for FY2024. The full-year outlook is based on the backlog of sold homes, projected net orders per community, reduced construction cycle time, and expected growth in community count.

KBH expects average selling price to be approx. $477,000 in the first quarter of 2024. For FY2024, the company expects average selling price to range between $480,000-490,000. Housing gross profit margin is expected to be approx. 21% for both Q1 and FY2024.

The margin outlook is based on the assumption that the current improved market environment will remain stable. If economic trends remain favorable through the spring selling season and beyond, the company sees potential for an increase in the full-year margin estimate, as further declines in mortgage interest rates, along with pent-up demand for housing, would pave the way for reductions in homebuyer concessions.

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