KB Home KBH is slated to report fourth-quarter fiscal 2024 (ended Nov. 30) results on Jan. 9, after market close.

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In the last reported quarter, its adjusted earnings met the Zacks Consensus Estimate while revenues topped the same by 1.5%. On a year-over-year basis, both metrics increased.

The company’s earnings topped the consensus mark in three of the last four quarters and met on the remaining occasion, the average surprise being 10.8%.

Trend in KBH’s Estimate Revision

For the fiscal fourth quarter, the Zacks Consensus Estimate for adjusted earnings has trended downward to $2.45 per share from $2.47 in the past 60 days. However, the projected figure indicates a 32.4% increase from the year-ago quarter’s earnings of $1.85 per share.

The consensus estimate for revenues is pegged at $1.99 billion, indicating a rise of 19% from the prior-year quarter’s level.

Factors to Shape KBH’s Quarterly Results

Revenues

KB Home’s top line is expected to have increased year over year on the back of strengthening demand for its affordably priced personalized homes and the improving macro trends surrounding the housing market. The macro trends include homebuyers adjusting to the new average mortgage rate standard and the enhanced job environment in the country. Although a persisting sticky inflation scenario is ailing the prospects, KB Home has been gushing through the negative territory thanks to improvements in construction cycle time and lower cancellation rates reflecting leverage from the tailwinds mentioned above.

Owing to the trending demand environment, the company expects housing revenues to be in the range of $1.94-$2.04 billion compared with the year-ago figure of $1.66 billion. KBH anticipates the average selling price, or ASP, of deliveries to be about $510,000, indicating growth from $487,300 reported a year ago. The company expects average community count improvement to be in the range of 7-8% during the quarter.

Our model expects housing revenues to increase 18.6% year over year to $1.97 billion in the quarter, with ASP increasing 5% to $511,600. Notably, we expect home deliveries to be 3,850 units, suggesting 13% growth from the year-ago quarter’s level of 3,407 units.

Margins

Although higher construction and land 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 offset those headwinds. The support from these growth drivers is expected to have led to year-over-year growth in KBH’s bottom line.

The company expects the homebuilding operating margin (assuming no inventory-related charges) to be between 11.4% and 11.8%. This compares unfavorably with the year-ago figure of 10.9%.

Assuming no inventory-related charges, KB Home expects the fiscal fourth-quarter housing gross margin to be in the range of 21-21.4%, up from 20.8% reported a year ago. Selling, general & administrative (SG&A) expenses, as a percentage of housing revenues, are likely to be around 9.6% (down from the year-ago figure of 9.9%). It projects an effective tax rate of approximately 24%.

Orders & Backlogs

KB Home’s continuous efforts to match its housing starts with its sales pace are noteworthy.

Keeping the tailwinds in mind, we expect new orders to increase notably by 57.6% to 3,008 units on a year-over-year basis. Also, the backlog is expected to be 4,882 units, implying a fall from 5,510 units reported in the prior year.

What Our Model Indicates for KBH

Our proven model does not conclusively predict an earnings beat for KB Home this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here.

Earnings ESP: KB Home has an Earnings ESP of -0.48%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Zacks Rank: KBH currently has a Zacks Rank #4 (Sell).

Stocks With the Favorable Combination

Here are some companies in the Zacks Construction sector, which, per our model, have the right combination of elements to post an earnings beat in the respective quarters to be reported.

Weyerhaeuser Company WY has an Earnings ESP of +27.27% and a Zacks Rank of 1 at present.

WY reported better-than-expected earnings in three of the last four quarters and missed on the remaining occasion, the average surprise being 41.6%. The company’s earnings for the fourth quarter of 2024 are expected to decline 62.5% from the prior year.

PotlatchDeltic Corporation PCH currently has an Earnings ESP of +420.00% and a Zacks Rank of 3.

PCH reported better-than-expected earnings in two of the trailing four quarters, missed on one occasion and met on the remaining occasion, the average surprise being 50%. Earnings for the fourth quarter of 2024 are expected to a loss of one cent compared with break-even earnings reported a year ago.

Acuity Brands, Inc. AYI currently has an Earnings ESP of +1.16% and a Zacks Rank of 3.

AYI’s earnings for the first quarter fiscal 2025 are expected to increase 4.3% year over year. The company reported better-than-expected earnings in each of the last four quarters, the average surprise being 8.2%.

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