KB Home (KBH) Misses Revenue Estimates In Q3 As Supply Chain Issues Added To Existing Headwinds
2:42 pm Thursday, September 22nd, 2022
KB Home (KBH) is sliding on a Q3 (Aug) revenue miss as supply chain issues disrupted the homebuilder’s ability to complete and deliver homes in the quarter. Meanwhile, net orders of just over 2,000 were half the number from the year-ago period, reflecting uneasiness amongst potential homebuyers in the wake of continually rising interest rates. The massive drop yr/yr is especially glaring compared to rival Lennar (LEN +2%), which saw new orders decline just 12% yr/yr in AugQ, which is partly why its shares are in positive territory today.
KBH remains positive on the long-term fundamentals supporting the housing industry, noting favorable demographics, job growth in its markets, and limited supply of new and used homes, similar to remarks made in previous quarters. However, KBH followed these comments up with a more gloomy outlook, expressing concern over buyers either pausing or moving to the sidelines amid higher rates, inflation, and broad macroeconomic uncertainty.
Against this backdrop, it may be hard to spot the positives that flowed from KBH’s AugQ report, but there were still a few worth mentioning.
Housing gross profit margins surged by 520 bps yr/yr to 26.7%, illuminating the positive impacts of KBH’s internal initiatives, including driving its SG&A expense ratio down 100 bps yr/yr. The solid margin expansion fueled KBH’s second-straight double-digit earnings beat in AugQ.
Furthermore, there is not a pronounced concern of KBH’s backlog being flimsy, with around two-thirds of the company’s buyers already locking in their mortgage rate or paying in cash.
Looking ahead, KBH was not overly cheerful in the current environment reversing homebuyer sentiment anytime soon, expecting housing revs of just $1.95-2.05 bln in Q4 (Nov). At the midpoint, KBH’s Q4 housing revenue forecast translates to the company missing its FY22 outlook of $7.3-7.5 bln by over $400 mln. Housing gross profit margins are also expected to dip slightly from Q3 to 25.0-26.0%.
