KB Home beats Q3 estimates but cuts margin guidance as housing demand weakens

KB Home reported better-than-expected third-quarter earnings on Tuesday, then cut its profitability outlook — telling investors that housing conditions have weakened since June and guiding fourth-quarter margins below what Wall Street expected. The stock fell about 3% on Wednesday.

KB Home (NYSE: KBH) earned $1.05 a share in its fiscal third quarter, down from $1.61 a year earlier but ahead of the $0.88 consensus estimate, on revenue of $1.30 billion, down 20% from a year ago. Net income was $65.3 million, down from $109.8 million. The company delivered 2,732 homes, 19% fewer than last year, at an average selling price of $473,000, essentially flat with the $475,700 of a year ago.

Profitability compressed across the board. Housing gross profit margin was 16.5%, down from 18.2% a year earlier — 16.8% excluding inventory-related charges, versus 18.9%. Homebuilding operating income margin fell to 5.2% from 8.1%, and selling, general and administrative expenses rose to 11.3% of housing revenue from 10.0%.

The outlook is what moved the stock. KB Home guided fourth-quarter housing gross margin of 16.0% to 16.6%, below the 17.2% analysts expected, and cut its full-year margin range to 16.0%–16.2% from 16.1%–16.5%. It expects to deliver 3,000 to 3,500 homes in the fourth quarter on housing revenue of $1.45 billion to $1.65 billion.

For the full year, KB Home expects to deliver 10,500 to 11,000 homes on housing revenue of $4.90 billion to $5.10 billion — a midpoint about 2% below analyst estimates, according to StockStory — with selling, general and administrative expenses of 11.5% to 11.7% of housing revenue.

Chief executive Jeffrey Mezger said the company is “operating in a housing market that continues to be challenging, with conditions weakening since our June earnings report,” adding that higher mortgage interest rates have pressured affordability and, “together with geopolitical uncertainty and broader economic headwinds, have caused many prospective buyers to be more cautious on purchasing a home.” The company attributed the margin pressure to continued pricing pressure, higher relative land costs and reduced operating leverage.

The margin guide also reflects a mix shift: chief accounting officer Bill Hollinger said slower third-quarter sales reduced the number of higher-priced Southern California homes the company expects to close in the fourth quarter. Partly offsetting that, built-to-order homes were nearly three-quarters of third-quarter deliveries and contributed to a sequentially higher gross margin, regional president Rob McGibney said. McGibney also flagged rising cost pressure from fuel, general inflation and tariffs that will lift direct costs on fourth-quarter deliveries.

The macro backdrop is unforgiving. Thirty-year mortgage rates stood at 7.17% on Tuesday, according to Mortgage News Daily data cited by Barron’s, and Mezger said resale inventory — “our largest competitor” — has climbed to its highest level in a decade, with pricing starting to decline in more markets.

There were bright spots. Net orders fell 12% to 2,604, but ending backlog rose 2% to 4,398 homes, with backlog value up 3% to $2.05 billion — the first increase in four years. KB Home repurchased 900,000 shares for $50 million in the quarter, $175 million over the first nine months, with $725 million remaining under its authorization, and plans up to $50 million of additional share repurchases in the fourth quarter.

Investors focused on the guide. Shares initially rose after Tuesday’s report, then turned lower during the 5 p.m. Eastern conference call, falling about 2% shortly before 5:30 p.m., and closed Wednesday at about $47.15, down roughly 3%. Analysts cut price targets on Wednesday: Truist to $50 from $55, Barclays to $49 from $57, and Bank of America to $54 from $56.

What to watch now is whether fourth-quarter deliveries land in the 3,000–3,500 range at the guided margins, and whether the growing built-to-order mix can stabilize profitability. Not yet known: how far pricing pressure extends into 2027, and whether mortgage rates ease enough to revive buyer traffic ahead of the spring selling season.