KB HOME Q4 FY2024 earnings call

Key Points

• Southern California fires: Thoughts and prayers with affected individuals, all divisions operational.
• Fourth quarter performance: Within guided range, total revenues $2 billion, up YOY; earnings per diluted share $2.52, up 36% YOY; gross margin near 21%, operating income margin 11.5%.
• Full year 2024: Delivered nearly 14,200 homes, total revenues ~$7 billion, diluted earnings $8.45 per share; book value expanded 12%, return on equity higher.
• Operational execution: Opened 106 new communities, sold out 90, reduced build time by avg 28% YOY, highest customer satisfaction.
• Housing market: Benefiting from solid employment and wages; demographics drive demand; existing home inventory still low in most markets at KB Home's price points; affordability constrained by rising mortgage rates.
• Net orders: 2,688 in Q4, up 41% YOY; first six weeks of 2025 Q1 net orders 1,026.
• Build times: Flat quarter-over-quarter at ~5 months in Q4, expect to drive lower in 2025 Q1 towards 4 months.
• Land investment: Invested $744 million in Q4, over $2.8 billion for the year, ending with ~77,000 lots owned/controlled.
• Joint venture: KBHS home loans had 88% capture rate, average cash down payment 16%, average household income over $131,000, FICO score 742.

In the fourth quarter, KB Home's total revenues were $2 billion, significantly higher year-over-year driven by a 17% increase in deliveries. Housing revenues in the fourth quarter grew to $1.99 billion compared to $1.66 billion in the prior year period, reflecting a 17% increase in the number of homes delivered and a 3% rise in overall average selling price. For the full year 2024, total revenues were roughly $7 billion, with nearly 14,200 homes delivered. The revenue contribution of the housing segment is the primary driver, with fourth quarter housing revenues accounting for a substantial portion of the total revenues.

Forward-Looking Statements

• Lowered housing revenue guidance for 2025 to $7.25 billion midpoint.
• Forecasted 2025 first quarter housing revenues in the range of $1.45 billion to $1.55 billion.
• Full year 2025 housing revenues forecasted in the range of $7.0 billion to $7.5 billion.
• 2025 first quarter gross profit margin forecasted in the range of 20.0% to 20.4%, full year in 20.0% to 21.0%.
• 2025 first quarter SG&A ratio expected to be in the range of 10.5% to 10.9%, full year in 9.6% to 10.0%.

Risks Discussed

• Mortgage rate volatility affecting near-term demand.
• Potential impact of tariffs and immigration policy on the homebuilding industry, early to assess as new administration not in place.
• Supply chain disruptions, though company has navigated before.
• Natural disasters like Southern California fires, which may impact recovery and operations in affected areas.

Q: Comment on backlog turnover ratio and cycle time impact.

A: Jeff Kaminski stated backlog turnover ratio approaching 70% in 2025 first quarter, driven by improved cycle time and some quick move in ready homes.

Q: Thoughts on order pace and community count impact.

A: Jeffrey Mezger mentioned order pace expected to be flattish year-over-year, with communities opening contributing to potential stronger absorptions as new communities sell better at opening.

Q: Gross margin guidance and factors.

A: Jeff Kaminski explained sequential decline in 2025 Q1 gross margin due to lower operating leverage, full year margin affected by mix and community openings.

Q: Inventory levels and market observations.

A: Jeffrey Mezger noted resale inventory levels in most markets 3.5-4 months, with some markets like Austin and Jacksonville having higher inventory at higher price points.

Q: Incentives and sales pace impact.

A: Robert McGibney stated incentives will be adjusted as needed based on market conditions, entering spring selling season where demand typically improves.

Q: Community count and lot count impact.

A: Jeff Kaminski mentioned community count dip in Q4 is temporary, driven by sellout pressure, with more grand openings and higher sellouts expected.

Q: Impact of California fires on business.

A: Jeffrey Mezger said it's too early to speculate on major labor and material impacts, though recovery will take time.

Q: Incentives and demand assumptions.

A: Jeff Kaminski stated assumptions on incentives are based on current observations, with backlog margins and market visibility guiding the outlook.