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What Investors Need to Know About KB Home's 3rd-Quarter Results

KB Home (NYSE:KBH) released its third-quarter results after the closing bell on Sept. 25. While the company's earnings met analysts' expectations, revenue fell short.

Key metrics

The homebuilder reported earnings of 73 cents per share, down from 83 cents per share in the prior-year quarter. Revenue declined 5% to $1.16 billion on the back of lower average selling prices of homes delivered. Analysts were anticipating earnings of 66 cents per share on $1.17 billion in revenue.

Housing details

Housing revenue came in at $1.15 billion in the third quarter, down from $1.22 billion a year ago on the back of a decline in the average selling price in the West Coast region. Overall, the company delivered 3,022 homes in the four regions it serves.

Net orders inched up 24% to 3,335 homes and, in value terms, 25% to $1.38 billion. The backlog came in at 6,230 homes, up 14% year over year. Potential housing revenue arising from backlog amounted to $2.04 billion, up 13% year over year.

"We are extremely pleased with the strength of our third-quarter results, led by a 24% rise in net orders, with double-digit increases in each of our four regions," Chairman and CEO Jeffrey Mezger said. "Our net order growth was driven by both significant community count expansion and a higher absorption rate, a key operational metric where we have long been an industry leader. Notably, during the quarter, we achieved a community absorption pace of 4.3 net orders per month, surpassing last year's robust performance, while at the same time increasing prices in about 90% of our communities."

Housing gross margins climbed 50 basis points to 18.5%, highlighting the positive impact of lower amortization of previously capitalized interest. The increase in the gross margin also reflected the company's new accounting standards.

At quarter-end, average community count stood at 255, reflecting a gain of 18% from the same quarter last year.


KB Home also provided fourth-quarter guidance. It expects housing revenue to be between $1.56 billion and $1.64 billion. The average selling price is projected to range from $400,000 to $410,000.

Average community count is forecasted to rise 10%.

"We expect to continue to grow our community count in 2020, and, together with our solid pace and $2.3 billion backlog, we believe we are well positioned for an excellent start to the new year," Mezger said.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.