KB Home Surprises with Strong Q4 Earnings, Shares Jump 10%

KB Home (NYSE: KBH) reported better-than-expected results for its fourth quarter of fiscal 2024, delivering adjusted earnings per share (EPS) of $2.52, beating analyst estimates of $2.45. Revenue came in at $1.999 billion, narrowly surpassing expectations of $1.998 billion and marking a robust 19% year-over-year (YoY) growth. The homebuilder’s stock, which had declined from $85 in November to $63 ahead of the earnings release, surged 10% as investors welcomed the stronger-than-anticipated results.

Key metrics highlighted the company’s operational strength in a challenging housing market. Home deliveries increased 17% YoY to 3,978, exceeding estimates of 3,901 units. KB Home achieved an average selling price of $501,000, up 3% from the prior year, although slightly below the consensus estimate of $510,000. The housing gross profit margin improved to 20.9%, edging past last year’s 20.7% and exceeding forecasts of 20.8%. Additionally, net orders soared 41% YoY to 2,688, significantly above the expected 2,554, reflecting strong buyer demand despite elevated mortgage rates.

Backlog and Order Trends

KB Home’s ending backlog was mixed, with the number of homes in backlog declining 20% YoY to 4,434 units, slightly above the estimated 4,377. The backlog value decreased 16% YoY to $2.24 billion, compared to $2.67 billion a year ago, as the company worked through inventory amid moderating demand earlier in the year. Monthly net orders per community increased to 3.5 units, up from 2.7 in the prior year, while the cancellation rate improved significantly, dropping to 17% from 28%. These metrics suggest that KB Home is successfully stabilizing its sales pipeline and benefiting from faster build times.

Guidance Reflects Optimism for 2025

Looking ahead, KB Home issued upbeat guidance for fiscal 2025, forecasting housing revenues between $7.00 billion and $7.50 billion, above analyst expectations of $6.988 billion. The company expects an average selling price of $488,000 to $498,000, and a housing gross profit margin between 20.0% and 21.0%, assuming no inventory-related charges. Additionally, the company anticipates homebuilding operating income as a percentage of revenue at approximately 10.7% and a selling, general, and administrative (SG&A) expense ratio of 9.6% to 10.0%.

Jeffrey Mezger, KB Home’s Chairman and CEO, expressed confidence in the company’s growth trajectory, citing investments of over $2.8 billion in land acquisition and development during 2024. Mezger noted that these investments will drive future community count growth and strengthen KB Home’s ability to meet buyer demand. He also highlighted the company’s commitment to shareholder returns, including $420 million returned through share repurchases and dividends in 2024.

Market Context and Share Reaction

The better-than-feared results come amid heightened concerns about the performance of homebuilders due to rising mortgage rates. The sector faced significant headwinds throughout 2024, with affordability challenges weighing on buyer sentiment. KB Home’s ability to deliver strong results and issue optimistic guidance has provided a short-term boost to investor sentiment, fueling a 10% rally in its stock post-earnings. Analysts expect the positive momentum to extend to other homebuilders as well, given the resilient demand trends.

Valuation-wise, KB Home’s stock remains relatively attractive, with a market capitalization of $4.63 billion and a price-to-earnings (P/E) ratio that is below the sector average. The stock’s rebound may signal a potential short-term recovery in the broader homebuilder space, as investors reassess the sector’s resilience in the face of ongoing challenges.

Concluding Thoughts

KB Home’s strong Q4 performance underscores its ability to navigate a difficult housing market and capitalize on improving demand conditions. The company’s focus on operational efficiency, such as faster build times and robust land investments, has positioned it well for growth in 2025. While backlog declines and affordability pressures remain risks, KB Home’s upbeat guidance and resilient execution suggest that the homebuilder is well-prepared to meet these challenges. The stock’s 10% post-earnings rally reflects investor optimism, and with favorable guidance, KB Home could continue to be a bright spot in the housing sector.