KB Home Posts Strong Q1 Earnings Despite Softer Demand
KB Home's first-quarter earnings results showed resilience in the face of a softer-than-expected demand environment, with the homebuilder posting $1.4 billion in total revenues and diluted earnings per share of $1.49.
In a conference call on March 24, KB Home Chairman and Chief Executive Officer Jeff Mezger attributed the decline in consumer confidence to affordability concerns and uncertainties around macroeconomic and geopolitical events. Despite this, Mezger noted that longer-term housing market conditions remain favorable, driven by demographics and an undersupply of homes.
The company delivered fewer homes than anticipated due to about 150 less inventory home sales than projected and a timing issue affecting roughly 75 deliveries in Southern California following the wildfires early this year. However, KB Home's gross margin held up well at 20.3%, excluding inventory-related charges, above the midpoint of its guided range.
With an SG&A of 11%, KB Home produced an operating income margin of 9.3%. The company also increased its book value per share to over $57, a 12% year-over-year increase. Net orders came in at 2,772 for the first quarter, with an average community count that was in line with projections and a cancellation rate that remained steady.
However, KB Home's monthly absorption pace per community was 3.6 homes compared to 4.6 in last year's first quarter. Mezger attributed this decline to a softer-than-expected start to the spring selling season, but noted that buyers' responses to pricing adjustments made mid-February were encouraging and led to a meaningful improvement in net orders in the last two weeks of the quarter.
For the trailing five weeks, KB Home's weekly net sales averaged about 300 units, which equates to an absorption pace of 5. This uptick in demand suggests that KB Home's efforts to reposition its communities with compelling value offerings may be paying off.
KB Home also announced that Rob Dillard will be joining the company as Executive Vice President and Chief Financial Officer next week. Mezger described Dillard as a well-rounded leader with a solid financial and operational background, who is an excellent addition to KB Home's finance and accounting team.
