• Total Revenues: $1.4 billion for the first quarter of fiscal 2025.
• Diluted Earnings Per Share: $1.49 in the first quarter.
• Gross Margin: 20.3%, excluding inventory-related charges.
• Operating Income Margin: 9.3% for the first quarter.
• Book Value Per Share: Over $57, a 12% year-over-year increase.
• Net Orders: 2,772 net orders in the first quarter.
• Average Community Count: 257, up 7% year-over-year.
• Backlog: Over 4,400 homes valued at $2.2 billion.
• Homes Delivered: 2,770 homes, a 9% decrease year-over-year.
• Average Selling Price: $500,700 for the first quarter.
• Housing Gross Profit Margin: 20.2% for the first quarter.
• SG&A Expense Ratio: 11% for the first quarter.
• Net Income: $109.6 million for the first quarter.
• Land Investment: $920 million in land acquisition and development.
• Share Repurchases: $50 million in share repurchases during the quarter.
• Total Liquidity: $1.25 billion, including $268 million of cash.
• Debt-to-Capital Ratio: 30.5% at the end of the quarter.

• Warning! GuruFocus has detected 5 Warning Signs with XTER:HPHA.

Release Date: March 24, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• KB Home (NYSE:KBH) reported a gross margin of 20.3%, which was above the midpoint of their guided range, despite lower deliveries.
• The company increased its book value per share to over $57, marking a 12% year-over-year increase.
• Net orders showed improvement in the last five weeks of the quarter, with a weekly average of about 300, equating to an absorption pace of 5.1 net orders per month per community.
• Build times improved to 147 days, the best level in the last four years, with some divisions already achieving the target of 120 days.
• KB Home (NYSE:KBH) maintained a healthy balance sheet with a debt-to-capital ratio of 30.5% and significant financial flexibility, including $1.25 billion in total liquidity.

Negative Points

• The company lowered its revenue guidance for fiscal 2025 due to softer demand at the start of the spring selling season.
• Deliveries fell short of expectations by approximately 225 homes, impacting both revenues and net income.
• The average absorption pace per community decreased to 3.6 homes compared to 4.6 in the previous year's first quarter.
• Housing gross profit margin decreased to 20.2% from 21.5% in the prior year, mainly due to higher land costs and increased homebuyer concessions.
• The company experienced delays in Southern California deliveries due to utility service issues related to wildfires, affecting about 75 homes.

Q & A Highlights

Q: What level of price adjustments was necessary to stimulate consumer demand, and how did these adjustments compare to typical seasonal trends? A: Jeffrey Mezger, CEO, explained that the company decided to eliminate hidden incentives and adjust base prices to reflect the true cost on their website. This move was necessary to align with market conditions and stimulate demand. Robert McGibney, COO, added that about half of their communities saw price reductions ranging from $5,000 to $30,000, averaging around $15,000 to $16,000. These adjustments led to a 75 basis point reduction in margins, but the consumer response was positive, leading to improved sales performance.

Q: How does KB Home plan to improve operating margins in the second half of the year despite the challenges faced in the first quarter? A: Jeffrey Mezger, CEO, stated that the improvement in operating margins is expected to come from better leverage, particularly in SG&A, as they deliver more houses. The margin per house is expected to remain stable, and the company has already factored in the necessary adjustments in their guidance.

Q: Are there any regional differences in terms of sales performance and pricing adjustments? A: Robert McGibney, COO, noted that Florida was the softest state in terms of sales demand, requiring more significant pricing adjustments. In contrast, the West and Southwest regions performed better, with fewer pricing changes needed. Texas showed mixed results, with Houston and Austin performing well, while San Antonio required broader adjustments.

Q: How is KB Home managing its backlog and potential price adjustments for homes already in the pipeline? A: Robert McGibney, COO, mentioned that they are handling backlog adjustments on a case-by-case basis. Most deals in the backlog were individually negotiated, and there is minimal exposure to price adjustments. The company has made some adjustments where necessary, but overall, the impact is expected to be small.

Q: What is the current status of KB Home's spec production, and how does it compare to previous years? A: Robert McGibney, COO, stated that the current mix is about 60% built-to-order (BTO) and 40% spec homes, similar to previous years. Historically, the company aimed for an 80% BTO and 20% spec mix. The goal is to increase BTO sales, which typically yield higher margins, and gradually return to the historical mix.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.