KB Home Misses Across the Board, Cuts Outlook as Housing Demand Softens
2min read KB Home (NYSE: KBH) delivered a disappointing first-quarter report for fiscal 2025, missing Wall Street expectations across key metrics and slashing its full-year guidance. The builder reported declines in revenue, net income, home deliveries, and gross margins, citing affordability concerns and macro uncertainty as headwinds to buyer activity. The miss follows a weak report from peer lennar (LEN) and further fuels concern over the health of the U.S. housing market. Shares of kbh fell 9% in after-hours trading, breaking below critical support at $62 and setting up a challenging path forward for bullish investors.
The company reported first-quarter earnings per share of $1.49, down 15% from $1.76 a year ago and below the Street estimate of $1.58. Revenue declined 5.2% year over year to $1.39 billion, falling short of the $1.5 billion consensus. Net income decreased 21% to $109.6 million as margins compressed and deliveries slowed. Homebuilding operating income fell to $127.3 million from $157.7 million, with the operating margin narrowing to 9.2% from 10.8% a year earlier. Lower leverage, higher land costs, and incentives to attract buyers contributed to the margin erosion.
Ask Aime: What impact will KB Home's disappointing first-quarter report have on its stock price and the broader housing market?
Key operating metrics were equally soft. Deliveries fell 9% year over year to 2,770 homes, missing estimates of 2,996. Net orders plunged 17% to 2,772, well below the expected 3,266, contributing to a 21% drop in backlog value to $2.20 billion. The number of homes in backlog declined 23% to 4,436. Monthly net orders per community fell to 3.6 from 4.6, and the cancellation rate ticked up to 16%. Inventories increased 7% sequentially to $5.94 billion, suggesting a potential overhang if demand doesn’t rebound quickly.
Despite the soft top line, the average selling price (ASP) rose 4.3% year over year to $500,700, in line with estimates. However, this price strength came at the expense of margins: the company’s housing gross margin slipped to 20.2% from 21.5%, and adjusted gross margin declined similarly to 20.3%. SG&A expenses edged higher to 11% of revenue, up from 10.8% last year, reflecting a lack of cost leverage as volumes shrank. In its mortgage JV, pretax income tumbled 35% to $7.5 million, reflecting fewer originations due to lower home deliveries.
Looking ahead, kb home lowered its full-year guidance sharply. The company now expects housing revenue between $6.60 billion and $7.00 billion, down from prior guidance of $7.00 billion to $7.50 billion and well below the Street’s $7.07 billion forecast. The updated midpoint of $6.8 billion represents a 3.4% miss. It also trimmed its housing gross margin outlook to 19.2%–20.0%, down from 20%–21%, as affordability pressures and buyer incentives are expected to persist. ASP guidance was narrowed to $480,000–$495,000. Homebuilding operating income is projected to be around 9.4% of revenue.
CEO Jeffrey Mezger acknowledged a “more muted” start to the spring selling season, attributing the softness to affordability concerns and geopolitical uncertainty. He noted some recent improvement in buyer traffic following community repositioning efforts in mid-February, but the slow start to Q1 left too large a hole to avoid a guide down. While Mezger expressed confidence in the company’s long-term positioning, the near-term picture remains cloudy.
The KBH report reinforces growing investor skepticism about the housing sector’s ability to weather high mortgage rates and buyer fatigue. It comes on the heels of a similarly underwhelming update from Lennar, and will likely keep pressure on peers like Toll Brothers (TOL), Beazer Homes (BZH), D.R. Horton (DHI), and Meritage (MTH). For KBH specifically, the technical breakdown below $62 raises concerns of further downside, especially if Q2 commentary does not show more concrete evidence of demand stabilization. With margins under pressure and order trends still soft, it will take more than seasonal optimism to turn this chart—and sentiment—around.
