KB Home’s Outlook for 2025 Better Than Expected

Image: KB Home’s shares have done well since the beginning of 2023.

By Brian Nelson, CFA

KB Home (KBH) reported fourth quarter results on January 13 that beat expectations on both the top and bottom lines. Year-over-year, revenues were up 19%, to $2 billion, above consensus of $1.98 billion, while homes delivered increased 17% and average selling price advanced 3%, to $501,000. Homebuilding operating income increased 27% in the quarter thanks in part to a 60 basis-point improvement in its homebuilding operating income margin.

KB Home’s housing gross profit margin increased to 20.9% from 20.7% in the same period last year. Financial services pretax income grew 8% in the quarter. Net income rose 27%, while diluted earnings per share increased 36%, to $2.52, better than the $2.44 consensus forecast and aided in part by stock buybacks. Management had a lot to say in the press release:

We had a strong finish to 2024, with significant year-over-year growth in our fourth-quarter revenues and diluted earnings per share. Our higher revenues reflected an increase in deliveries, which were driven by faster build times. Net orders rose roughly 40% year over year, as buyers continued to demonstrate a desire for homeownership and housing market conditions improved relative to last year, despite ongoing mortgage interest rate headwinds. Our performance in the quarter contributed to a healthy outcome for 2024, as we generated nearly $7.0 billion in total revenues and $8.45 in diluted earnings per share. Operationally, we executed well, opening 106 new communities, significantly reducing our build times and achieving the highest level of customer satisfaction in our Company’s history.

In 2025, we will remain focused on expanding our scale, profitability and returns. We believe we are poised for growth having invested over $2.8 billion in land acquisition and development in 2024, and we plan to increase our investment again in 2025. These investments will contribute to future community count growth and, together with our affordably priced personalized homes that our Built to Order model offers, we believe we are well positioned to meet buyer demand. In addition, as in 2024, during which we returned over $420 million to our shareholders through both repurchases and dividends, we intend to continue our balanced capital allocation approach.

As noted in the company’s remarks, net orders and net order value for the quarter increased roughly 40% year-over-year, with net order value growing in each of the company’s four regions, ranging from 21% in the Southwest to 60% in the Central region. Monthly net orders per community increased to 3.5 compared to 2.7, while its cancellation rate improved to 17% from 28%.

Ending backlog homes totaled 4,434 compared to 5,510, while ending backlog value was $2.24 billion compared to $2.67 billion. The company ended the quarter with total liquidity of $1.68 billion, including $598 million of cash and cash equivalents. Notes payable were $1.69 billion, while inventories grew 8%. It bought back 1.26 million shares of stock in the fourth quarter at a cost of $100 million, and it still has $700 million remaining on its current common stock repurchase authorization.

Looking to fiscal 2025, KB Home’s housing revenue is expected in the range of $7.00-$7.5 billion, compared to the consensus forecast of $6.89 billion, with the average selling price in the range of $488,000-$498,000. Homebuilding operating income as a percentage of revenues is targeted at roughly 10.7%, which assumes no inventory-related charges.

For the year, housing gross profit margin is targeted in the range of 20.0%-21.0% and assumes no inventory-related charges. Selling, general, and administrative expenses as a percentage of housing revenues is expected in the range of 9.6%-10.0%. We liked KB Home’s fourth quarter results and outlook for fiscal 2025 and what they imply with respect to the health of the housing market. KB Home doesn’t make the cut for any newsletter portfolio, however.

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