Potential home buyers are more cautious than they were in the middle of last year thanks to higher mortgage rates, “persistent” inflation and an “uncertain economy,” KB Home said Tuesday as it reported a quarterly miss.
Market conditions “remain challenging,” KB Home
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Chief Executive Jeffrey Mezger said. That led the home builder to focus on its backlog of unsold homes and on protecting margins, he said.
KB Home earned $216 million, or $2.47 a share, in the fourth quarter, compared with $174 million, or $1.91 a share, in the year-ago period. Revenue rose 16% to $1.94 billion.
Analysts polled by FactSet expected earnings of $2.86 a share on sales of $1.99 billion.
The stock fell 4% in the extended session Wednesday after ending the regular trading day up 3.1%. Shares have lost about 15% in the past 12 months, compared with losses of around 16% for the S&P 500 index
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KB Home still has a “large” backlog of more than 7,600 homes, equal to about $3.7 billion in future revenue, supporting its projections for 2023, Mezger said.
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The CEO also left the door open for possible price cuts.
“Depending on market dynamics and backlog levels in each community, we are getting more aggressive with our pricing ahead of the spring selling season, in order to generate new orders,” Mezger said.
KB Home is also looking for cuts in costs and in building time, which would help to offset any impact of lower prices, he said.
The number of homes delivered rose 3% to 3,786, while the average selling price rose 13% to $510,400, KB Home said.
Reflecting a “sharply lower demand stemming from higher mortgage interest rates, inflation and other macroeconomic and geopolitical concerns,” gross orders for the quarter hit 2,169 units, down 47% on-year.
Cancellation rates as a percentage of gross orders jumped 68%, compared to 13% a year ago.
See also: How the Fed is ‘collapsing’ real estate activity with higher interest rates
KB Home guided for first-quarter 2023 housing revenue in a range between $1.25 billion and $1.40 billion, average selling price between $490,000 and $500,000, and profit margins between 20% and 21%.
KB Home shied away from a larger set of full-year guidance “due to significant uncertainty and limited forward visibility regarding 2023 housing market, macroeconomic and geopolitical conditions,” guiding only for housing revenue in a range of $5 billion to $6 billion for the year.