KB Home posts strong earnings as fundamentals remain favorable for the industry

KB Home (KBH), a reputable homebuilding company, announced its Q1 (Feb) 2023 earnings, surpassing estimates. The Homebuilder ETF (ITB) hit an all-time high yesterday afternoon as Fed Chair Powell continued to suggest rate cuts lay ahead. KBH"s earnings reinforce the strong industry fundamentals as a shortage of housing leads to strong demand. 

Shares of KBH recently tested and found support at its 20-day moving average. Now bulls must show resolve and break this out above the $70 resistance level. 

The company posted earnings of $1.76 per share, beating the consensus of $1.57, and reported a 6.5% year/year increase in revenues to $1.47 billion, compared to the consensus of $1.46 billion. 

Key performance metrics include a 9% increase in homes delivered to 3,037, an average selling price of $480,100 (down from $494,500 in the previous year), and a housing gross profit margin of 21.5%, which remained stable compared to the year-earlier quarter. Excluding inventory-related charges, the housing gross profit margin stood at 21.6%, compared to 21.8% in the previous year. 

KB Home reported a 55% growth in net orders to 3,323, with a net order value increasing by 58% to $1.58 billion. The company's backlog decreased by 17% year over year to 5,796, with a backlog value of $2.79 billion, down by 16 % year over year.

Financial services pretax income rose to $11.6 million from $6.0 million, primarily driven by increased equity in income from the company's mortgage banking joint venture, which benefited from a higher volume of interest rate locks and loan originations as more homes were delivered during the current period, and 85 % of buyers financed their home purchases using the joint venture, up from 79% in the previous year.

Homebuilding operating income totaled $157.7 million, slightly up from $156.5 million, while the homebuilding operating income margin was 10.8%, compared to 11.4% in the previous year. Excluding inventory-related charges, the homebuilding operating income margin was 10.9%, compared to 11.7% in the previous year.

Gross orders increased by 15% to 3,873, and the cancellation rate as a percentage of gross orders improved to 14%, down from 36% in the previous year. The company's ending backlog totaled 5,796 homes, down from 7,016 in the previous year, with an ending backlog value of $2.79 billion, down from $3.31 billion. Ending backlog homes and value each increased by 5% from the previous quarter.

For the full fiscal year 2024, KB Home anticipates housing revenues to range from $6.50 billion to $6.90 billion, an increase from its prior guidance of $6.40 billion to $6.80 billion. The company also expects an average selling price in the range of $480,000 to $490,000, in line with its previous guidance, and a housing gross profit margin in the range of 21.0% to 21.4%, assuming no inventory-related charges, compared to its prior guidance of approximately 21.0%. 

Overall, KB Home's strong Q1 2023 earnings and positive guidance for the full fiscal year 2024 indicate the company's resilience and ability to navigate market challenges. With a focus on growth through increased community count and operational efficiencies, KB Home is well-positioned to capitalize on the housing market recovery and deliver value to its shareholders. As the company continues to manage its inventory and costs effectively, it remains poised for continued success in the future.