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KB Home (KBH) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research
·5 mins read

KB Home KBH is slated to report second-quarter fiscal 2020 results on Jun 24, after market close.

In the last reported quarter, its earnings topped the Zacks Consensus Estimate by 46.5% on continued progress of the Returns-Focused Growth plan, given higher deliveries. Notably, the company's earnings topped analysts’ expectations in each of the trailing 17 quarters. The bottom line in the fiscal first quarter more than doubled from the year-ago figure.

Its revenues topped the consensus mark by 13.2% and grew a notable 33% year over year, mainly due to higher home deliveries and average selling price (ASP) of homes delivered.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings has remained unchanged over the past 30 days at 57 cents per share. That said, the estimate indicates a 11.8% increase from the year-ago earnings of 51 cents per share. The consensus estimate for revenues is pegged at $1.07 billion, suggesting a rise of 5% from the prior-year quarter.

KB Home Price and EPS Surprise

KB Home Price and EPS Surprise
KB Home Price and EPS Surprise

KB Home price-eps-surprise | KB Home Quote

Factors to Note

Revenues: KB Home — which shares space with Lennar LEN in the Zacks Building Products - Home Builders industry — is expected to have generated higher earnings and revenues in the fiscal second quarter on the back of improved demand, given declining mortgage rates.

However, disruptions caused by the coronavirus outbreak in the United States have certainly impacted business to some extent. Also, shortage of building lots and fear of general economic slowdown might have impacted sales in the quarter to be reported. Meanwhile, KB Home consistently follows the Built-to-Order approach, i.e., a strategy of initiating construction only after a purchase agreement has been executed, and generally does not produce excess spec inventory. This might have been a disadvantage for KB Home, as housing demand in the United States has recovered since mid-April.

Nonetheless, lower mortgage rates and demand for affordable housing from multiple demographic groups are likely to have given a boost to its order growth. Focus on entry-level buyers and relaxed mortgage lending standards should have also benefited KB Home.

Backed by the above-mentioned tailwinds, the Zacks Consensus Estimate for the company’s Homebuilding revenues (representing 99.7% of total revenues) — including housing and land — is pegged at $1,116 million, which indicates a 9.5% increase from $1,019 million in the year-ago period. Within Homebuilding, housing revenues are expected to be $1,068 million, indicating a 4.9% rise from $1,018 million reported in the prior-year period. ASP is likely to be $390K, indicating growth of 6% from $368K reported a year ago.

Financial Services revenues are expected to grow 6.4% year over year in the to-be-reported quarter to $3.3 million.

Orders & Backlogs: The consensus estimate for new orders is currently pegged at 2,845 units, suggesting a 30% year-over-year decline. Nonetheless, backlogs are expected to be 6,105 units, implying growth of 3% from 5,927 units reported in the prior year.

Margins: Rising labor costs and land prices have been major concerns for the overall housing industry. To mitigate these costs and expenses-related headwinds, it undertook various initiatives like Returns-Focused Growth Plan, Built-to-Order approach, and aggressive investments in land acquisition and development. These actions are expected to have provided considerable support to its margins and bottom-line performance in the to-be-reported quarter.

What Our Model Indicates

KB Home does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

Earnings ESP: Its Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: KB Home currently has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks With Favorable Combination

Here are some companies in the homebuilding space, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

D.R. Horton, Inc. DHI has an Earnings ESP of +29.09% and a Zacks Rank #3.

Meritage Homes Corporation MTH has an Earnings ESP of +52.21% and holds a Zacks Rank #2 (Buy).

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KB Home (KBH) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
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