KB Home (KBH 24.26, +0.18, +0.75%) reported lackluster yet encouraging results
The sixth largest homebuilder by market value reported tepid first quarter results and guided second quarter revenue below estimates.
First quarter revenue fell 7% and came in at the low end of guidance as orders were weak during the slowdown in recent quarters. The average selling price fell 5%, below guidance, due to a shift in the geographic mix of homes delivered and softer pricing in the West Coast region.
Adjusted gross margin expanded 90 basis points to 17.6%, above guidance, helped by lower interest expense as the company pays down debt. Earnings beat estimates but fell 23% from an adjusted number last year.
Perhaps most importantly, net orders fell 4%, which was better than the 12% decline last quarter.
On the call, management noted that the market improved in January and February and has so far in March as mortgage rates pulled back.
KB Home reaffirmed guidance for a 10-15% increase in community count this year after the metric grew by 10% in the first quarter. The company consistently cites a lack of supply in California for its woes, so management likes its setup this year as the housing market firms.
All in, sequential improvement is encouraging as we enter the heart of the spring selling season.
This morning, the largest publicly traded builder Lennar (LEN) missed deliveries, citing unfavorable weather, but reported orders well above guidance. Management's positive commentary on the housing market echoed that of KB Home's.
With a 2.1 bln market capitalization, KBH trades at 9x EPS and 1.0x book value. The average mid-cap builder trades at 9x forward EPS estimates and 1.3x book value.
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