KB Home KBH is scheduled to release its third-quarter fiscal 2023 results (ended Aug 31) on Sep 20, after the market closes.
In the previous quarter, KB Home exceeded the Zacks Consensus Estimate for earnings and revenues by 51.6% and 23.1% respectively. However, on a year-over-year basis, earnings declined while revenues increased.
KB Home’s earnings have beaten analysts’ expectations in 27 of the last 30 quarters.
Trend in Estimate Revision
The Zacks Consensus Estimate for KB Home’s earnings for the quarter remained unchanged at $1.37 per share over the past 30 days. However, this projected figure indicates a 52.1% decrease from the earnings of $2.86 per share in the year-ago quarter. The consensus estimate for revenues is $1.46 billion, suggesting a 21% decline from the prior-year quarter’s levels.
KB Home Price and EPS Surprise
Factors at Play
Revenues: KB Home’s housing revenues are expected to have decreased in the fiscal third quarter compared to a year ago due to high mortgage rates, persistent inflation, and an uncertain economy, resulting in challenging year-over-year comparisons.
KB Home expects housing revenues in the range of $1.35-$1.50 billion, down from $1.84 billion in the year-ago quarter. The average selling price (ASP) is projected to be $470,000, a decline from $508,700 reported a year ago. The company expects an approximately 10% improvement in average community count.
We anticipate a 21.2% year-over-year decrease in housing revenues to $1.45 billion in the quarter. The ASP is expected to decrease 7.4% to $470,400 in the quarter.
Home deliveries are expected to be 3,080 units, a decline from the 3,615 units in the year-ago quarter.
Margins: While higher material and labor costs may have negatively impacted the bottom line, initiatives like the Returns-Focused Growth Plan and Built-to-Order approach may have partially offset these headwinds.
KB Home expects the homebuilding operating margin (assuming no inventory-related charges) in the range of 9.5% – 10.1%, compared to 17.7% in the year-ago quarter.
Assuming no inventory-related charges, KB Home expects the fiscal third-quarter housing gross margin to be in the range of 20.4% – 21%, down from 26.7% reported a year ago. Selling, General & Administrative expenses, as a percentage of housing revenues, are expected to be in the range of 10.6% – 11.2% (up from 8.9% in the year-ago period). The company projects an effective tax rate of approximately 23%.
Orders & Backlogs: We expect new orders to increase to 3,449 units from 2,040 units a year ago. The limited supply of pre-owned homes in the market has led homebuyers to focus on builders who have increased their construction efforts to meet the growing demand. Despite ongoing challenges, KB Home, like other homebuilding companies, has benefitted from this trend.
We expect the backlog to be 7,655 units, a decrease from 10,756 units reported in the prior-year quarter. However, this estimated figure reflects an increase from 7,286 units in the last reported quarter.
What Our Model Indicates
Based on our proven model, we cannot conclusively predict an earnings beat for KB Home this time around. The stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) for an earnings beat. KB Home does not meet these criteria.
Earnings ESP: KB Home has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: KB Home currently has a Zacks Rank #2.
Stocks With Favorable Combination
According to our model, here are some companies in the Zacks Construction sector that have the potential for an earnings beat in their respective quarters.
Dream Finders Homes, Inc. DFH has an Earnings ESP of +0.86% and a Zacks Rank #1. See the complete list of today’s Zacks #1 Rank stocks here.
DFH is expected to report a 7.8% decline in earnings for the upcoming quarter. The company has exceeded earnings expectations in two of the last four quarters and missed in the other two, resulting in an average surprise of 122.7%.
Watsco, Inc. WSO has an Earnings ESP of +6.12% and a Zacks Rank #3.
The company is expected to report 5% earnings growth for the upcoming quarter. Watsco has exceeded earnings expectations in two of the last four quarters and missed in the other two, resulting in an average surprise of 3.5%.
UFP Industries, Inc. UFPI has an Earnings ESP of +0.12% and a Zacks Rank #3.
The company is expected to report a 19.9% decline in earnings for the upcoming quarter. UFP Industries has exceeded earnings expectations in three of the last four quarters and missed in one, resulting in an average surprise of 11.2%.
Stay updated on upcoming earnings announcements with the Zacks Earnings Calendar.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.