Homebuilders Lennar Corporation (NYSE: LEN) and KB Home (NYSE: KBH) reported their third quarter 2023 earnings results recently. Both companies saw their revenues and profits fall during the period amid a challenging environment. At the same time, they continued to witness steady demand for affordable housing which provides optimism over the long term.
Sales and profits
Lennar generated total revenues of $8.7 billion for the third quarter of 2023, which was down 2% year-over-year. GAAP EPS decreased 23% to $3.87 while adjusted EPS fell 24% to $3.91. KB Home’s revenues for the third quarter totaled $1.59 billion, which was down 14% from the prior-year period. Its earnings fell 37% to $1.80 per share versus last year. Despite the YoY declines, both companies’ top and bottom line numbers beat market estimates.
Business performance
In their most recent quarter, the homebuilders witnessed a rise in demand for housing even though affordability continues to be a constraint. There is a limited supply of new homes and the cost of housing is expected to remain high. In this environment, consumers are willing to purchase or rent what they can afford. The market, in turn, is making adjustments to prices and raising incentives to make home purchases as affordable as possible for buyers.
Lennar saw its revenues from home sales drop 2% in the third quarter, mainly due to a 9% decrease in average sales price of home deliveries. This was offset by an 8% increase in the number of home deliveries. The company saw its new orders increase 37% to 19,666 homes in Q3.
KB Home’s housing revenues declined 15% YoY in Q3, reflecting a 7% drop in the number of homes delivered and an 8% decrease in their overall average selling price. Its net orders grew 52% to 3,097 in the quarter.
Lennar expects the supply-demand imbalance to continue due to the limited supply of new homes. The shortage of new houses gives KB Home optimism with the company expecting first-time buyers to fuel the housing market over the next decade.
Outlook
For the fourth quarter of 2023, Lennar expects new orders to range between 16,200 and 17,200 and deliveries to range between 21,500 and 22,500. The company expects its average sales price for Q4 to be consistent with Q3.
KB Home expects housing revenues of $1.55-1.65 billion for the fourth quarter of 2023. It expects overall average selling price to increase to approx. $486,000 helped by an anticipated mix shift towards higher-priced West Coast deliveries.
Shares of Lennar and KB Home stayed green on Monday.