Core Viewpoint - The S&P 500 has seen a broad rally, but the homebuilding sector is struggling due to high mortgage rates, rising construction costs, and regulatory pressures [1] Group 1: Factors Affecting Homebuilders - High mortgage rates have persisted, with the 30-year fixed-rate mortgage fluctuating between 6.5% and 7% for nearly two years, significantly higher than the 2.67% seen in December 2020 [5] - Tariffs on construction materials such as steel, copper, and lumber are increasing costs, with year-over-year increases of 13.6% for fabricated steel plates, 15.1% for metal molding and trim, 18.9% for softwood lumber, and 24.2% for machinery equipment and parts [5] - An immigration crackdown is leading to labor shortages, particularly in the South and Midwest, where undocumented workers make up a significant portion of the construction workforce [4] Group 2: Market Performance and Company Analysis - D.R. Horton Inc. reported earnings that beat expectations, but year-over-year numbers still showed a decline, indicating potential challenges ahead for the sector [8] - NVR Inc. is facing headwinds due to its asset-light model and reliance on subcontractors, with expectations of further year-over-year declines in earnings [11] - Lennar Corp. is vulnerable due to its high-volume strategy, which is sensitive to macroeconomic pressures, and reported a 4.4% drop in year-over-year revenue [14] - KB Home, focusing on first-time buyers, is particularly affected by high prices and mortgage rates, with a reported revenue drop of 10.5% year-over-year [17]

It has been about a month since the last earnings report for KB Home (KBH) . Shares have added about 11.2% in that time frame, outperforming the S&P 500.Will the recent positive trend continue leading up to its next earnings release, or is KB Home due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.KB Home's Q2 Earnings & Revenues Beat EstimatesKB Home ...

Core Insights - KB Home is experiencing significant challenges due to higher mortgage rates and economic uncertainty, leading to a projected double-digit decline in earnings for the fiscal year [1] - The company reported a revenue drop to $1.53 billion in fiscal Q2 2025, down from $1.71 billion a year ago, with homes delivered falling 11% to 3,120 [2] - Adjusted gross profit margin decreased to 19.7% from 21.2% year-over-year, impacted by price reductions, higher land costs, and reduced operating leverage [3] Financial Performance - KB Home's fiscal Q2 2025 earnings beat the Zacks Consensus Estimate by $0.05, reporting $1.50 compared to the consensus of $1.45 [2] - The company is guiding a full-year gross profit margin of 19% to 19.4%, lower than previous years, with analysts cutting earnings estimates for fiscal 2025 to $6.55, a decline of 22.5% from $8.45 last year [6] - For fiscal 2026, the Zacks Consensus Estimate has decreased to $6.86 from $7.64, indicating a modest earnings growth of 4% [7] Strategic Adjustments - In response to market conditions, KB Home is scaling back on land acquisitions, with investments in land and land development falling 23% to $513.9 million [4] - The company repurchased $200 million in stock at an average price of $54, reflecting a strategy to leverage its cheap stock price [4] - KB Home maintains a total liquidity of $1.19 billion, including $308.9 million in cash, and continues to pay a dividend with a yield of 1.80% [5] Market Sentiment - Shares of KB Home have retreated in 2025 due to tough housing market conditions, although they recently bounced off lows as mortgage rates fell [10][12] - The forward price-to-earnings (P/E) ratio stands at 8.5, indicating the stock is considered cheap, typically associated with a P/E ratio under 10 [12] - There is cautious optimism regarding a potential recovery in earnings, contingent on gross profit margins rising above 20% [13]

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) For Q2 2025, KB Home reported **total revenues** of **$1.53 billion** and **net income** of **$107.9 million**, a decrease from **$1.71 billion** and **$168.4 million** in Q2 2024, respectively, with **total assets** at **$7.02 billion** and **Cash flow from operations** at **-$165.9 million** for the first six months of 2025 | Financial Metric | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Six Months Ended May 31, 2025 | Six Months Ended May 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $1,529.6 million | $1,709.8 million | $2,921.4 million | $3,177.6 million | | **Net Income** | $107.9 million | $168.4 million | $217.4 million | $307.1 million | | **Diluted EPS** | $1.50 | $2.15 | $3.00 | $3.91 | | Balance Sheet Item | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $308.9 million | $598.0 million | | Inventories | $5,913.3 million | $5,528.0 million | | Total Assets | $7,017.6 million | $6,936.2 million | | Notes Payable | $1,892.9 million | $1,691.7 million | | Total Stockholders' Equity | $3,990.5 million | $4,060.6 million | | Cash Flow Activity (Six Months Ended) | May 31, 2025 | May 31, 2024 | | :--- | :--- | :--- | | Net cash from operating activities | ($165.9 million) | $90.0 million | | Net cash used in investing activities | ($20.4 million) | ($29.0 million) | | Net cash used in financing activities | ($102.0 million) | ($144.1 million) | [Segment Information](index=8&type=section&id=2.%20Segment%20Information) The company operates through four homebuilding segments and one financial services segment, with the **West Coast segment** being the largest contributor to **revenues** (**$1.26 billion**) and **pretax income** (**$145.6 million**) for the six months ended May 31, 2025 | Homebuilding Segment (Six Months Ended May 31) | Revenues 2025 | Revenues 2024 | Pretax Income 2025 | Pretax Income 2024 | | :--- | :--- | :--- | :--- | :--- | | West Coast | $1,261.8 million | $1,256.7 million | $145.6 million | $152.9 million | | Southwest | $627.0 million | $641.8 million | $114.1 million | $110.5 million | | Central | $558.6 million | $696.3 million | $46.2 million | $85.1 million | | Southeast | $464.4 million | $568.4 million | $33.3 million | $70.8 million | - **Inventory impairment** and **land option contract abandonment charges** for the six months ended May 31, 2025, totaled **$7.0 million**, a significant increase from **$2.5 million** in the prior-year period[28](index=28&type=chunk) [Financial Services](index=9&type=section&id=3.%20Financial%20Services) The **financial services segment's pretax income** decreased by **37%** to **$15.7 million** for the six months ended May 31, 2025, compared to **$24.8 million** in the prior year, driven by lower revenues and reduced equity income from the unconsolidated mortgage joint venture (KBHS) | Financial Services (Six Months Ended May 31) | 2025 | 2024 | | :--- | :--- | :--- | | Total Revenues | $9.6 million | $14.4 million | | Equity in income of unconsolidated joint venture | $9.2 million | $13.5 million | | **Pretax Income** | **$15.7 million** | **$24.8 million** | [Inventories](index=11&type=section&id=6.%20Inventories) **Total inventories** increased to **$5.91 billion** as of May 31, 2025, up from **$5.53 billion** at November 30, 2024, primarily due to growth in **land under development** to **$3.80 billion**, with **$55.0 million** of **interest costs** capitalized | Inventory Component | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Homes completed or under construction | $2,117.7 million | $1,990.1 million | | Land under development | $3,795.7 million | $3,537.9 million | | **Total** | **$5,913.3 million** | **$5,528.0 million** | [Inventory Impairments and Land Option Contract Abandonments](index=11&type=section&id=7.%20Inventory%20Impairments%20and%20Land%20Option%20Contract%20Abandonments) The company recognized no **inventory impairment charges** in the first six months of 2025 or 2024, but **land option contract abandonment charges** significantly increased to **$7.0 million** for the six months ended May 31, 2025, from **$2.5 million** in 2024 - **Land option contract abandonment charges** were **$5.6 million** for Q2 2025 and **$7.0 million** for the six months ended May 31, 2025[41](index=41&type=chunk) - **No inventory impairment charges** were recognized for the three-month and six-month periods ended May 31, 2025 and 2024[39](index=39&type=chunk) [Debt and Financing](index=18&type=section&id=14.%20Notes%20Payable) **Total notes payable** increased to **$1.89 billion** as of May 31, 2025, from **$1.69 billion** at November 30, 2024, primarily due to drawing **$200.0 million** from the **unsecured revolving credit facility**, while remaining in compliance with all **debt covenants** | Debt Instrument | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Unsecured revolving credit facility | $200.0 million | $0 | | Senior unsecured term loan | $359.2 million | $358.8 million | | Senior notes | $1,330.6 million | $1,329.7 million | | **Total** | **$1,892.9 million** | **$1,691.7 million** | - As of May 31, 2025, the company had **$881.7 million** available for cash borrowings under its **$1.09 billion** credit facility[68](index=68&type=chunk) [Commitments and Contingencies](index=20&type=section&id=16.%20Commitments%20and%20Contingencies) The company faces various commitments and contingencies, including a **warranty liability** of **$97.7 million**, approximately **280 construction defect claims** in Florida, a **subpoena from the U.S. Department of Justice** regarding ENERGY STAR homes, and **Outstanding performance bonds** totaling **$1.44 billion** - The company is addressing approximately **280** outstanding claims in Florida related to Chapter 558, alleging construction defects, primarily concerning stucco and water-intrusion issues[93](index=93&type=chunk) - On October 2, 2023, the company received a **subpoena from the U.S. Department of Justice** regarding the inspection, rating, and marketing of its ENERGY STAR certified homes. The company is cooperating with the government[96](index=96&type=chunk) - As of May 31, 2025, the company had **$1.44 billion** in **outstanding performance bonds** and **$82.7 million** in letters of credit to secure project completions[94](index=94&type=chunk) [Stockholders' Equity](index=23&type=section&id=18.%20Stockholders'%20Equity) During the first half of 2025, the company **repurchased** **4.5 million shares** of its **common stock** for **$250.0 million**, with **$450.0 million** remaining available under the current **share repurchase authorization**, and paid a **quarterly cash dividend** of **$0.25 per share** in Q2 2025 - In the first half of 2025, the company **repurchased** **4,488,614 shares** for **$250.0 million**. **$450.0 million** remains authorized for future repurchases as of May 31, 2025[100](index=100&type=chunk) - A **quarterly cash dividend** of **$0.25 per share** was declared and paid in the second quarter of 2025[102](index=102&type=chunk) [Management's Discussion and Analysis (MD&A)](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported that **market conditions softened** in Q2 2025 due to housing affordability concerns and elevated mortgage rates, leading to a **13%** year-over-year decline in **net orders**, prompting a **new pricing strategy** and a downward revision of **full-year 2025 guidance** for **housing revenues** to between **$6.30 billion** and **$6.50 billion** [Overview of Operations](index=25&type=section&id=OVERVIEW) In Q2 2025, the company faced a softer market with subdued demand, resulting in **net orders** falling **13%** year-over-year to **3,460**, a **10%** decrease in Q2 **housing revenues** to **$1.52 billion**, and **diluted EPS** falling **30%** to **$1.50** - **Market conditions softened** in Q2 2025 due to housing affordability concerns, elevated mortgage rates, and weakening consumer confidence[106](index=106&type=chunk) - **Net orders** for Q2 2025 were down **13%** year-over-year to **3,460**, with a monthly net order pace per community of **4.5**, compared to **5.5** in the prior year[107](index=107&type=chunk) - A **new pricing strategy** was implemented, reducing selling prices and other homebuyer concessions to stimulate demand. This led to an **8%** decrease in the **average selling price** of **net orders** for the quarter[108](index=108&type=chunk) [Homebuilding Operations Analysis](index=26&type=section&id=HOMEBUILDING) **Homebuilding revenues** for Q2 2025 fell **10%** to **$1.52 billion**, driven by an **11%** decrease in homes delivered, with **Operating income** dropping **30%** to **$131.5 million**, and **housing gross profit margin** contracting by **180 basis points** to **19.3%**, while **ending backlog value** was down **27%** year-over-year to **$2.29 billion** | Metric (Q2) | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Homes Delivered | 3,120 | 3,523 | -11% | | Housing Gross Profit Margin | 19.3% | 21.1% | -180 bps | | Adjusted Housing Gross Profit Margin | 19.7% | 21.2% | -150 bps | | SG&A as % of Housing Revenues | 10.7% | 10.1% | +60 bps | | Metric (Q2) | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Orders | 3,460 | 3,997 | -13% | | Net Order Value | $1.61 billion | $2.03 billion | -21% | | Cancellation Rate | 16% | 13% | +3 p.p. | | Ending Backlog Value | $2.29 billion | $3.12 billion | -27% | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company ended Q2 2025 with **$1.19 billion** in **total liquidity**, including **$308.9 million** in cash and **$881.7 million** available on its credit facility, shifting capital allocation towards **share repurchases** (**$250.0 million** in H1 2025) and scaling back **land and development investments**, resulting in a **debt-to-capital ratio** increase to **32.2%** - **Total liquidity** was **$1.19 billion** at the end of Q2 2025, consisting of cash and available credit facility capacity[159](index=159&type=chunk) - The company is scaling back **land and development investments** (down **23%** YoY in Q2) while increasing **share repurchases** (**$250.0 million** in H1 2025)[111](index=111&type=chunk)[163](index=163&type=chunk) - The **debt-to-capital ratio** increased to **32.2%** at May 31, 2025, from **29.4%** at November 30, 2024, due to **$200.0 million** in borrowings under the credit facility[169](index=169&type=chunk) - **Net cash used in operating activities** was **$165.9 million** for the first six months of 2025, a reversal from **$90.0 million** provided in the prior year, mainly due to a **$390.6 million** increase in inventories[182](index=182&type=chunk) [Outlook](index=43&type=section&id=Outlook) Due to persistent soft market conditions, KB Home has revised its **2025 full-year guidance** downwards, expecting **housing revenues** between **$6.30 billion** and **$6.50 billion**, with an **average selling price** of **$480,000** to **$490,000**, and a **housing gross profit margin** of **19.0%** to **19.4%** | 2025 Full Year Guidance | Revised Projection | Prior Year (2024) | | :--- | :--- | :--- | | Housing Revenues | $6.30 billion - $6.50 billion | $6.90 billion | | Average Selling Price | $480,000 - $490,000 | $486,900 | | Housing Gross Profit Margin | 19.0% - 19.4% | 21.1% | | Ending Community Count | Approx. 250 | 258 | | Q3 2025 Guidance | Projection | Prior Year (Q3 2024) | | :--- | :--- | :--- | | Housing Revenues | $1.50 billion - $1.70 billion | $1.75 billion | | Average Selling Price | $470,000 - $480,000 | $480,900 | | Housing Gross Profit Margin | 18.1% - 18.7% | 20.7% | - The company expects to repurchase between **$100.0 million** and **$200.0 million** of its **common stock** in the **third quarter** of 2025[202](index=202&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its **market risk profile** since November 30, 2024, except for increased **interest rate risk exposure** due to **$200.0 million** in cash borrowings outstanding under its **variable-rate** Credit Facility as of May 31, 2025 - The **primary change in market risk** is related to the **$200.0 million** of **variable-rate debt** drawn from the Credit Facility, which is subject to interest rate fluctuations based on SOFR[213](index=213&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's **disclosure controls and procedures** and concluded they were effective as of May 31, 2025, with no material changes in **internal control over financial reporting** during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's **disclosure controls and procedures were effective** as of May 31, 2025[216](index=216&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings & Risk Factors](index=47&type=section&id=Item%201.%20Legal%20Proceedings%20%26%20Item%201A.%20Risk%20Factors) The company refers to Note 17 of the financial statements for details on **legal proceedings**, and reports **no material changes to risk factors** previously disclosed in the Annual Report on Form 10-K for the year ended November 30, 2024 - For **legal proceedings**, the report refers to Note 17 in the financial statements[217](index=217&type=chunk) - **No material changes to risk factors** were reported since the last Annual Report[218](index=218&type=chunk) [Share Repurchases](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2025, KB Home **repurchased** **3,734,675 shares** of its **common stock** for a **Total Cost** of **$200.0 million**, with **$450.0 million** remaining available under its **board-authorized share repurchase program** as of May 31, 2025 | Period (2025) | Total Shares Purchased | Average Price Paid per Share | Total Cost | | :--- | :--- | :--- | :--- | | March | 0 | N/A | $0 | | April | 2,072,237 | $52.56 | $108.9 million | | May | 1,662,438 | $54.79 | $91.1 million | | **Q2 Total** | **3,734,675** | **$53.55** | **$200.0 million** | - As of May 31, 2025, **$450.0 million** remained available for repurchase under the existing authorization[219](index=219&type=chunk)

Group 1 - In May, new single-family home sales in the U.S. fell sharply by 13.7% month-over-month, totaling 623,000 units, significantly below the market expectation of 695,000 units [1] - Year-over-year, the sales figure decreased by 6.3%, falling short of the average sales of 671,000 units over the past six months and 676,000 units over the past year [1] - The data reflects buyers' actual ordering intentions in May, with rising mortgage rates severely impacting housing affordability [1] Group 2 - Lennar's co-CEO indicated that the macroeconomic environment remains challenging, with high mortgage rates and various uncertainties dampening consumer confidence, leading to weakened demand [2] - Different strategies among builders are evident, with Lennar lowering home prices in response to reduced demand, while KB Home has raised prices, reflecting regional market differences [2] - Despite weak sales, the median price of new homes in May was $426,600, a 3% increase from the previous year [2] Group 3 - The inventory of new single-family homes has accumulated rapidly, with 507,000 units available for sale by the end of May, resulting in a supply level of 9.8 months, the highest since the Fed began raising interest rates in 2022 [2] - This inventory level has increased by 15% compared to the same period in 2024 and is among the most abundant supply phases since the 2009 financial crisis, only briefly reaching similar levels in the summer of 2022 [2]

Sales of new single-family homes dropped 13.7% in May compared with April to 623,000 units on a seasonally-adjusted, annualized basis, according to the U.S. Census. That sales total was 6.3% lower than May 2024 and well below both the 6-month average of 671,000 and the one-year average of 676,000. It also lags the pre-pandemic average in 2019 of 685,000 units sold. Wall Street analysts were expecting May new home sales of 695,000, according to estimates from Dow Jones. This count is based on signed contract ...

Core Viewpoint - The article emphasizes the importance of fundamental analysis in identifying undervalued companies with long-term growth potential, advocating for a value investing approach that focuses on purchasing quality companies at a discount to their intrinsic value and holding them for extended periods to maximize earnings and shareholder returns [1]. Summary by Relevant Categories Investment Strategy - The investment strategy discussed is a blend of value investing principles and a focus on long-term growth, highlighting the significance of buying quality companies at a discount [1]. Company Characteristics - The article suggests that the ideal companies for investment are those that exhibit long-term growth potential and are currently undervalued in the market [1].

Q2 2025 Performance - Housing revenues decreased by 10% year-over-year, totaling $1.53 billion in Q2 2025 compared to $1.70 billion in Q2 2024[21] - Deliveries decreased by 11% year-over-year, with 3,120 homes delivered in Q2 2025 versus 3,523 in Q2 2024[21] - Net orders decreased by 13% year-over-year, from 3,997 in Q2 2024 to 3,460 in Q2 2025[21] - Net order value decreased by 21% year-over-year, amounting to $1.61 billion in Q2 2025 compared to $2.03 billion in Q2 2024[21] - Backlog homes decreased by 24% year-over-year, from 6,270 in Q2 2024 to 4,776 in Q2 2025[21] - Backlog value decreased by 27% year-over-year, totaling $2.29 billion in Q2 2025 compared to $3.12 billion in Q2 2024[21] Financial Highlights - Total liquidity was $1.19 billion, including $308.9 million in cash and $881.7 million of available capacity under the unsecured revolving credit facility[22] - The company repurchased approximately 3.7 million shares of its outstanding common stock at a total cost of $200 million during the quarter[22] - Stockholders' equity totaled $3.99 billion, and book value per share increased 10% to $58.64[22] Strategic Positioning - Approximately 60% to 70% of the company's business is Built to Order (BTO), allowing buyers to personalize their homes[3] - The company's ENERGY STAR homes are up to 20% more efficient than standard new homes built to code[91]

KB Home KBH posted better-than-expected earnings for the second quarter after the closing bell on Monday.KB Home reported second-quarter revenue of $1.52 billion, beating analyst estimates of $1.51 billion. The company reported second-quarter earnings of $1.50 per share, beating analyst estimates of $1.47 per share, according to Benzinga Pro."Our second quarter financial performance was solid, with results meeting or exceeding our guidance ranges, as we continue to navigate the current environment. Our team ...

Core Viewpoint - KB Home's stock increased by 3% following the release of its second-quarter fiscal 2025 results, which exceeded earnings and revenue estimates, although both metrics showed a year-over-year decline [1][4]. Financial Performance - Adjusted earnings per share (EPS) were reported at $1.5, surpassing the Zacks Consensus Estimate of $1.45 by 3.5%, but down from $2.15 in the same quarter last year [4]. - Total revenues reached $1.53 billion, exceeding the consensus mark of $1.495 billion by 2.3%, yet reflecting a 10.5% decrease year-over-year [4]. Market Conditions - The results indicate a soft housing market, with homebuyers facing affordability challenges due to high mortgage rates, leading to a reduction in net orders [2][9]. - Net orders fell by 13% year-over-year to 3,460 units, with the value of net orders decreasing to $1.611 billion from $2.032 billion in the previous year [6]. Segment Analysis - Homebuilding revenues declined by 10.4% to $1.525 billion, with home deliveries down 11% to 3,120 units [5]. - The average selling price (ASP) for homes increased by 1.2% year-over-year to $488,700 [5]. Operational Metrics - The backlog at the end of the quarter totaled 4,776 homes, down from 6,270 homes a year ago, with potential housing revenues from the backlog declining by 27% to $2.288 billion [7]. - The housing gross margin contracted by 150 basis points to 19.7%, attributed to lower prices and higher land costs [8]. Financial Position - As of May 31, 2025, KB Home had cash and cash equivalents of $308.9 million, down from $598 million at the end of fiscal 2024, with total liquidity of $1.19 billion [11]. - The debt-to-capital ratio increased to 32.2% from 29.4% at the end of fiscal 2024 [11]. Guidance Update - KB Home has lowered its fiscal 2025 guidance for housing revenues to a range of $6.30-$6.5 billion, down from the previous expectation of $6.6-$7 billion [13]. - The expected housing gross margin is now between 19% and 19.4%, compared to the prior range of 19.2%-20% [14].