KBH reports decline in Q4 revenue, backlog and margins but provides positive outlook for 2024

KB Home (KBH), a leading homebuilding company,  released its Q4 earnings report, revealing a decline in revenues and backlog. However, the company's CEO, Jeffrey Mezger, expressed optimism about the future, citing increased net orders for the first five weeks of 2024 and an improving market. This article will analyze KB Home's performance in Q4, highlighting the most crucial aspects of its earnings report and exploring its investment potential moving forward.

Q4 Financial Results:

KB Home's Q4 financial results showed a mixed performance. Although the company exceeded its own guidance on several key metrics, there were notable declines compared to the previous year.

In Q4, KB Home reported revenues of $1.67 billion, a 14% decrease from the previous year's $1.94 billion. This decline could be attributed to a decrease in homes delivered, lower average selling price, and other homebuyer concessions.

The number of homes delivered decreased by 10% to 3,407 in Q4, compared to 3,774 in the previous year.  KB Home's average selling price decreased by 4.5% year-over-year, from $510,400 to $487,300. 

The housing gross margin was 20.7% in Q4, down from 22.4% in the previous year. Excluding inventory-related charges, the housing gross margin was 20.8%, reflecting a decline from 23.9% due to price decreases and higher construction costs.

KB Home's backlog fell by 28% year-over-year to 5,510 homes, compared to 7,662 in the previous year. The backlog value also experienced a decline from $3.69 billion to $2.67 billion.

Positive Outlook for 2024:

Despite the challenges faced in Q4, KB Home's CEO remains optimistic about the company's prospects. Mezger highlighted a meaningful sequential increase in net orders for the first five weeks of 2024, thanks to favorable response from consumers to declining mortgage rates. He also outlined the company's projected community count growth for 2024, contributing to their belief that they are well-positioned to meet buyer demand.

KB Home provided guidance for its full-year 2024, outlining the following:

1. Housing revenues in the range of $6.4 billion to $6.8 billion.

2. Average selling price in the range of $480,000 to $490,000.

3. Homebuilding operating income as a percentage of revenues of approximately 11.0%, assuming no inventory-related charges.

4. Housing gross profit margin of approximately 21.0%, assuming no inventory-related charges.

Conclusion:

KB Home's Q4 earnings report indicates a decline in revenue, backlog, and average selling price. However, the company's positive outlook for 2024, along with the increase in net orders and favorable response from consumers, suggests a potential recovery. Investors should closely monitor KB Home's ability to capitalize on the improving market conditions, its execution of cost control measures, and its ability to meet buyer demand. While challenges persist, the company's long-term prospects remain promising if it can successfully navigate the evolving landscape of the housing market.