Shares of KB House (NYSE: KBH) have been up barely on Friday. The inventory has dropped 40% year-to-date and 35% over the previous 12 months. The corporate delivered blended outcomes for its third quarter of 2022 this week. This, together with a downbeat steering and indicators of a slowdown within the housing market, has raised considerations over the homebuilder’s progress prospects. Right here’s a take a look at what did and didn’t work for KB House in its just-ended quarter:
The brilliant aspect
In Q3 2022, KB House’s revenues grew 26% year-over-year to $1.84 billion whereas EPS grew 79% to $2.86, with the latter surpassing expectations. Homebuilding working revenue rose 91% to $325.1 million whereas working revenue margin improved 610 foundation factors to 17.7%. Pricing and a good provide/demand surroundings for housing drove an enchancment in gross revenue margin to 27% from 22% final yr.
Houses delivered elevated 6% to three,615 whereas common promoting value rose 19% to $508,700. The corporate stays optimistic in regards to the long-term outlook for the housing market. It sees a number of elements comparable to favorable demographics, inhabitants, job progress and excessive rents supporting the demand for homeownership. There’s additionally a restricted provide of houses because the trade produces lesser variety of new houses and the degrees of present residence stock stay low and at reasonably priced value factors.
KB House believes it’s well-positioned when it comes to deliveries for the fourth quarter of 2022 and into the primary half of 2023 with a backlog of 10,700 houses valued at approx. $5.three billion. For the fourth quarter of 2022, common promoting value is anticipated to be approx. $503,000, which might characterize a YoY improve of 12%.
The flip aspect
Though KB House’s revenues grew throughout the quarter, they fell wanting market expectations. House deliveries have been impacted by prolonged construct instances and provide chain constraints and got here under the corporate’s expectations.
The rise in mortgage rates of interest, the continued inflation and different macroeconomic considerations have led many potential patrons to place their homebuying plans on maintain. KB House noticed its web orders drop by 50% YoY to 2,040 in Q3 whereas web order worth decreased by 51% to $979 million.
In mild of the present market situations, the corporate determined to cut back its land investments and throughout the third quarter, it reduce its land acquisition and improvement spend by virtually 30% versus final yr. As there’s restricted near-term visibility with reference to financial situations and their impact on homebuyers, KBH plans to maintain its land spend low for the foreseeable future. In Q3, the corporate canceled contracts to buy practically 8,800 tons.
KB House expects provide chain constraints and prolonged construct instances to proceed within the fourth quarter and has subsequently moderated its income outlook for the interval. The corporate expects housing revenues to vary between $1.95-2.05 billion in This autumn 2022. This steering was decrease than what analysts had been estimating, which put a damper on Avenue sentiment.