Encouraged By Robust Recovery, Housing Market Demand: KB Home CEO

KB Home KBH beat the street estimates on Q3 earnings and revenue, but COVID-19 hampered the business, as seen from 14% year-over-year revenue decline.

Earnings Analysis: Q3 homebuilding revenue declined 13.98% year-over-year to $995.15 million, but the homebuilding operating margin improved significantly by 155 bps to 8.94%.

Home deliveries in the third quarter fell 16% year-over-year to 2,545, offset partially by rise in average selling price of $384,700, from $381,400 last year.

Net orders for the first three weeks of September are up 32% compared to last year, and the cancellation rate has improved to 12% from 17% in the corresponding period.

KB Home has resumed land acquisition and development activities, which took a partial pause in Q2 to preserve liquidity during the pandemic.

Q3 saw record net order growth of 27% to 4,214, a level not seen since 2005.

The ending backlog rose 8% to 6,749 homes and ending backlog value grew 12% to $2.57 billion, making it the best Q3 value since 2007.

Conference Call: "Looking at our underlying buyer data for orders in the third quarter, we see a few interesting post-pandemic shifts taking place that we view as favorable for our business," Jeff Mezger, Chairman, President, and CEO of KB Home, said on the conference call.

"We are encouraged by the robust recovery and housing market demand that has favorably impacted our business," said Mezger.

The company owns all lots in inventory to support its growth targets for 2021. It anticipates opening 135 new communities in 2021.

Outlook: "We expect our full-year housing revenues at the midpoint of our guidance will be up over $200 million versus the midpoint of our prior guidance," CFO Jeff Kaminski said on the conference call.

Q4 homebuilding operating margin is expected to be in the range of 9% to 9.4% and the housing gross profit margin to be in a range of 20% to 20.4%.

Q4 expected effective tax rate is approximately 24%.

Q4 SG&A ratio is expected to be in the range of 10.8% to 11.2%.

Price Action: KBH shares are trading down 1.48% in after-hours session to $40.49 after the conference call. The stock was up 2.4% in after-hours session briefly after reporting earnings. KeyBac has downgraded KB Home to Overweight today.