Core Points - KB Home has been recognized as one of the World's Best Companies by TIME for 2025, highlighting its status as a leading homebuilder in the U.S. [1] - The recognition is a collaboration between TIME and Statista, emphasizing the company's strong market presence and consumer data [1] - Jeffrey Mezger, the Chairman and CEO of KB Home, expressed honor in receiving this acknowledgment, indicating the company's commitment to excellence [1]

Core Points - KB Home (NYSE: KBH) will release its earnings for the third quarter ended August 31, 2025, after the market closes on September 24, 2025 [1] - A live webcast of the earnings conference call is scheduled for the same day at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time [1] - Investors can access the call through the Investor Relations section of the KB Home website [1]

Core Insights - KB Home is a significant player in the US homebuilding market, focusing on first-time and move-up buyers, as well as active adults [1] Company Overview - KB Home designs and constructs various types of residential properties, including single-family homes, townhomes, and attached/detached units [1] Market Focus - The company targets two primary demand pools: first-time buyers and those looking to move up, along with active adult demographics [1]

Core Insights - The S&P Composite Homebuilders Index rose by 1.5%, reaching its highest closing point since December 11, 2024, following data that showed U.S. housing starts in July increased to a five-month high, contrary to expectations of a decline in housing starts for July [1] Company Performance - Home Depot saw a stock increase of 3.17% - Lennar's stock rose by 2.15% - LGI Homes experienced a 1.88% increase in stock price - D.R. Horton shares increased by 1.79% - KB Home's stock rose by 1.72% - PulteGroup saw a 1.68% increase - Century Communities' stock rose by 1.44% - Berkshire Hathaway Class B shares increased by 1.42% [1]

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]

Core Viewpoint - KB Home's recent earnings report showed a mixed performance with earnings and revenues beating estimates but declining year-over-year, reflecting challenges in the housing market due to high mortgage rates and affordability concerns [2][3][5]. Earnings & Revenue Discussion - Adjusted earnings per share (EPS) for Q2 fiscal 2025 were $1.5, exceeding the Zacks Consensus Estimate of $1.45 by 3.5%, but down from $2.15 in the same quarter last year [5]. - Total revenues reached $1.53 billion, surpassing the consensus mark of $1.495 billion by 2.3%, yet decreased by 10.5% year-over-year [5]. Segmental Details - Homebuilding segment revenues were $1.525 billion, a decline of 10.4% from $1.702 billion in the prior year, with homes delivered dropping 11% to 3,120 units [6]. - The average selling price (ASP) increased by 1.2% year-over-year to $488,700 [6]. - Net orders fell by 13% to 3,460 units, with the value of net orders decreasing to $1.611 billion from $2.032 billion a year ago [7]. 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 [12]. - The debt-to-capital ratio increased to 32.2 from 29.4 at the end of fiscal 2024 [12]. Guidance and Outlook - KB Home lowered its fiscal 2025 guidance, now expecting housing revenues between $6.30 billion and $6.5 billion, down from a previous range of $6.6 billion to $7 billion [14]. - The expected housing gross margin is now between 19% and 19.4%, compared to the prior range of 19.2% to 20% [15]. - The company anticipates SG&A expenses as a percentage of housing revenues to be in the range of 10.2% to 10.6% [16]. Market Performance - KB Home's stock has increased by approximately 11.2% since the last earnings report, outperforming the S&P 500 [1]. - The consensus estimate for KB Home has shifted downward by 18% since the earnings release, indicating a negative sentiment among investors [17].

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 Performance - Sales of new single-family homes dropped 13.7% in May compared to April, totaling 623,000 units on a seasonally-adjusted, annualized basis, which is 6.3% lower than May 2024 and below both the 6-month average of 671,000 and the one-year average of 676,000 [1] - Wall Street analysts had expected May new home sales to be 695,000 according to estimates from Dow Jones [1] Mortgage Rates - The average rate on the 30-year fixed mortgage started May at 6.83%, rose to just over 7%, and settled back at 6.95% by the end of the month [2] - High mortgage rates are impacting buyer activity, limiting the potential for sales increases [3] Market Conditions - The macroeconomic environment remains challenging, with high mortgage interest rates and diminished consumer confidence affecting demand [4] - Home builders are experiencing mixed responses, with some lowering prices while others, like KB Home, are raising prices despite the overall market conditions [4] Pricing and Supply - The median price of a new home sold in May was $426,600, which is 3% higher than the previous year [5] - Slower sales have led to a significant increase in supply, with 507,000 new homes available at the end of May, representing a 9.8-month supply at the current sales rate, which is 15% higher than May 2024 [5] - This level of supply has not been seen since the summer of 2022 and has not been this high since 2009 during the subprime mortgage crisis [6]