KB Home Q3 FY2025 earnings call

Key Points

• Solid financial results achieved, meeting or exceeding guidance ranges across key metrics.
• Repurchased over $188 million of shares in the third quarter, with total repurchases year-to-date near $440 million.
• Operational achievements include reducing build times, opening 32 new communities, and maintaining high customer satisfaction levels.
• Market conditions: Favorable longer-term outlook for housing market driven by demographics and undersupply; current conditions show stability in demand and decline in mortgage interest rates.
• Focus on built-to-order homes, aiming to return to historical range of ~70% built-to-order mix, which offers better gross margins and customer value.

In the third quarter of 2025, KB Home generated total revenues of $1.62 billion. Housing revenues were $1.61 billion, a decrease of 8% from the prior year. Housing gross profit margin was 18.2%, while adjusted housing gross profit margin (excluding inventory-related charges) was 18.9%, exceeding the high end of the guidance range. SG&A expenses as a percent of housing revenues were 10%. Housing revenues contributed the majority of the company's overall revenue, with the housing segment being the primary focus.

Guidance

• 2025 fourth quarter housing revenues projected between $1.6 billion and $1.7 billion.
• Full-year 2025 housing revenues expected to be between $6.1 billion and $6.2 billion.
• Expect fourth quarter average selling price between $465,000 and $475,000, and full-year 2025 average selling price ~$483,000.
• Anticipate repurchasing between $50 million and $150 million of common stock in the fourth quarter, subject to various factors.

Risks

• Market conditions and mortgage rate fluctuations could impact demand and affordability.
• Inventory mix and pricing pressures may affect gross margins.
• Land market uncertainties and potential challenges in executing the shift back to built-to-order homes.

Q: About order ASP and margin reconciliation, how to square sequential decline in order ASP with 70% of communities having stable to increasing prices?

A: Rob McGibney stated it's mostly mix driven, with regional mix affecting average selling price.

Q: On demand conversion and reaction to mortgage rate changes, what's the outlook?

A: Rob McGibney said reaction depends on community, with traffic steady but orders not seeing big uptick yet, leveraging built-to-order with float down option.

Q: On third quarter gross margin beat and fourth quarter margin outlook, any toggle on delivery timing?

A: Robert Dillard mentioned strong construction performance and mix as drivers, with thoughtful approach to fourth quarter.

Q: On shifting back to built-to-order share and margin differentials, progress and outlook?

A: Jeffrey Mezger and Rob McGibney discussed progress in built-to-order mix, with margin differential of 250-400 basis points, expecting improvement in 2026.

Q: On lowering direct costs, which categories and outlook?

A: Rob McGibney said direct costs lowered across board, with lumber costs down and trade partner negotiations aiding, outlook dependent on market conditions.

Q: On demand dynamics and sales pace, specific monthly cadence?

A: Jeffrey Mezger stated demand was steady through third quarter, with orders consistent, no big shift seen in September yet.

Q: On strategy reliance on demand inflection and mortgage rate impact?

A: Jeffrey Mezger discussed backlog positioning and reliance on potential demand inflection, with no pivot back planned unless necessary.

Q: On Southeast region order prices and volumes, reasons?

A: Rob McGibney said price reductions in response to resale inventory, leading to order volume increase.

Q: On land market softening and geographies, magnitude?

A: Jeffrey Mezger said land markets showing slight easing, with some areas seeing lower prices and better terms.

Q: On design studios and capital allocation for shift to built-to-order, position and focus?

A: Rob McGibney said design studios leveraged as before, focusing on driving built-to-order business; Robert Dillard discussed thoughtful capital allocation balancing growth and shareholder returns.