KB Home (KBH) to Report Q3 Earnings: What's in the Offing?
KB Home KBH is slated to report third-quarter fiscal 2023 results (ended Aug 31) on Sep 20, after market close.
In the last reported quarter, its earnings and revenues beat the Zacks Consensus Estimate by 51.6% and 23.1%, respectively. On a year-over-year basis, revenues increased but earnings decreased.
The company’s earnings topped analysts’ expectations in 27 of the trailing 30 quarters.
Trend in Estimate Revision
For the quarter to be reported, the Zacks Consensus Estimate for earnings has remained unchanged at $1.37 per share over the past 30 days. However, the projected figure indicates a 52.1% decrease from the year-ago quarter’s earnings of $2.86 per share. The consensus estimate for revenues is pegged at $1.46 billion, suggesting a decline of 21% from the prior-year quarter’s levels.
KB Home Price and EPS Surprise
KB Home price-eps-surprise | KB Home Quote
Factors at Play
Revenues: KB Home’s housing revenues are expected to have decreased in the fiscal third quarter from a year ago, thanks to tough year-over-year comparisons, given high mortgage rates, persistent inflation, along with the uncertain economy.
Owing to a softer demand environment compared to a year-ago period due to challenging macroeconomic and geopolitical conditions, the company expects housing revenues in the range of $1.35-$1.50 billion compared with the year-ago figure of $1.84 billion. KBH anticipates the average selling price or ASP to be $470,000, suggesting a decline from $508,700 reported a year ago. The company expects an average community count improvement of approximately 10%.
We expect housing revenues to decrease 21.2% year over year to $1.45 billion in the quarter. We expect ASP to decrease 7.4% to $470,400 in the quarter.
We expect home deliveries to be 3,080 units, suggesting a decline from the year-ago quarter’s level of 3,615 units.
Margins: Although higher material and labor costs are likely to have put pressure on the bottom line, initiatives like the Returns-Focused Growth Plan and Built-to-Order approach are likely to have somewhat offset those headwinds.
The company expects the homebuilding operating margin (assuming no inventory-related charges) to be between 9.5% and 10.1%. This compares unfavorably with the year-ago figure of 17.7%.
Assuming no inventory-related charges, KB Home expects the fiscal third-quarter housing gross margin to be in the range of 20.4-21% versus 26.7% reported a year ago. Selling, General & Administrative expenses, as a percentage of housing revenues, are likely to be in the range of 10.6%-11.2% (up from the year-ago figure of 8.9%). It projects an effective tax rate of approximately 23%.
Orders & Backlogs: We expect new orders to grow to 3,449 units from 2,040 units a year ago. Homebuyers are encountering a limited supply of pre-owned homes on the market, prompting them to shift their focus toward builders who have ramped up their construction efforts to meet this growing demand. KB Home, like other homebuilding companies, has been riding high on this tailwind despite the continuous challenges.
We expect the backlog to be 7,655 units, implying a notable fall from 10,756 units reported in the prior-year quarter. However, the estimated figure suggests an increase from 7,286 units in the last reported quarter.
What Our Model Indicates
Our proven model does not conclusively predict an earnings beat for KB Home this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here.
Earnings ESP: KB Home has an Earnings ESP of 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 #2.
Stocks With Favorable Combination
Here are some companies in the Zacks Construction sector, which according to our model, have the right combination of elements to post an earnings beat for their respective quarters to be reported.
Dream Finders Homes, Inc. DFH has an Earnings ESP of +0.86% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
DFH is expected to register a 7.8% decline in earnings for the to-be-reported quarter. Notably, DFH reported better-than-expected earnings in two of the last four quarters and missed on other two occasions, with the average surprise being 122.7%.
Watsco, Inc. WSO has an Earnings ESP of +6.12% and a Zacks Rank #3.
WSO’s earnings for the to-be-reported quarter are expected to grow 5%. The company reported better-than-expected earnings in two of the last four quarters and missed on other two occasions, with the average surprise being 3.5%.
UFP Industries, Inc. UFPI has an Earnings ESP of +0.12% and a Zacks Rank #3.
UFPI’s earnings for the to-be-reported quarter are expected to decline 19.9%. The company reported better-than-expected earnings in three of the last four quarters and missed on other one occasion, with the average surprise being 11.2%.
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UFP Industries, Inc. (UFPI) : Free Stock Analysis Report
Watsco, Inc. (WSO) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
Dream Finders Homes, Inc. (DFH) : Free Stock Analysis Report
