Release Date: June 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KB Home (KBH, Financial) reported total revenues of over $1.7 billion and earnings per share of $2.15, exceeding expectations.
- The company achieved a healthy operating income margin of over 11% and a gross profit margin of 21.1%.
- Net orders and net order value showed positive year-over-year comparisons, indicating strong demand.
- The backlog of committed buyers is valued at over $3 billion, providing a solid foundation for future revenue.
- Build times have improved significantly, now averaging around five months, with further improvements targeted.
Negative Points
- Volatility in mortgage rates has created uncertainty for consumers, potentially delaying purchase decisions.
- Mortgage concessions remained necessary to support buyers, impacting overall profitability.
- The Southeast region showed flat sequential orders, indicating potential regional demand challenges.
- Higher selling, general, and administrative expenses were incurred to position for future growth, impacting margins.
- The company faces increased competition from the resale market, particularly in regions like Florida.
Q & A Highlights
Q: Can you confirm if the fourth-quarter revenue outlook implies a 14% sequential increase from the third quarter, and why wouldn't there be more leverage on the gross margin front?
A: Yes, you are thinking about that correctly. The largest headwind is the mortgage rate side, but we are pleased to have incrementally raised the full-year gross margin outlook despite these challenges. (Jeff Kaminski, CFO)
Q: How would you frame your confidence in near-term demand and future land spend?
A: Demand remains solid, and we are not straying from our underwriting approach. We are finding enough deal flow to expand our investments and do not plan to slow down our land spend. (Jeffrey Mezger, CEO)
Q: What kind of volume growth or revenue growth are you setting your land strategy up to achieve?
A: We are targeting over 10% annual community count growth, which translates to 14% to 20% revenue growth. This strategy is built ground-up with a focus on market share in each city. (Jeffrey Mezger, CEO)
Q: How has demand progressed throughout the quarter and into the third quarter, especially with recent rate movements?
A: Demand was consistent across our footprint, with each region achieving over five net orders per month per community. Incentives have held steady, and we expect seasonal slowing as we move into summer. (Robert Mcgibney, COO)
Q: What are your thoughts on the sustainability of current gross margins and the impact of shifting to option lots?
A: Our margins are sustainable and could expand with higher scale and reduced incentives. We are not seeing much change in margins from option lots and are focused on expanding community count. (Jeff Kaminski, CFO)
Q: Are you seeing more competition from resale homes in certain markets, and how are you responding?
A: Resale inventory levels have increased but are still below historical norms. We are monitoring the situation and adjusting as needed, but overall demand remains strong. (Robert Mcgibney, COO)
Q: Can you quantify the impact of lot premiums and upgrades on profitability, and what is the potential upside from rate reductions?
A: Lot premiums and studio spend have been consistent, contributing positively to margins. A reduction in mortgage incentives could add about 4% to our gross margins. (Jeff Kaminski, CFO)
Q: How do you view the health of the consumer and the buyer profile, especially with potential rate reductions?
A: Our buyers have high incomes and FICO scores, but there is more debt burden compared to a few years ago. Rate reductions would help affordability, but we are not assuming they will happen soon. (Jeffrey Mezger, CEO)
Q: What was driving the order performance in the Southeast and West regions, and do you expect community count to catch up?
A: Community count was down slightly, but demand remains strong. We expect community count to catch up as delayed openings come online. (Robert Mcgibney, COO)
Q: Why not be more aggressive on the gross margin guide given positive pricing and product shifts?
A: Our gross margin forecasts are based on our backlog, providing visibility into future performance. We have incrementally raised our full-year range and will continue to monitor conditions. (Jeff Kaminski, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
