KB Home (NYSE:KBH) reported third-quarter fiscal 2026 results that met or exceeded its guidance despite what executives described as a more difficult housing environment marked by rising mortgage rates, affordability pressures, higher resale inventory and cautious consumers.
The homebuilder generated $1.3 billion in housing revenues, net income of $65 million and diluted earnings per share of $1.05 for the quarter ended Aug. 31. Housing revenues declined 20% from the prior-year quarter, primarily because deliveries fell 19% to 2,732 homes. The company’s average selling price was $473,000, compared with approximately $476,000 in the prior-year period.
Built-to-order mix supports sequential margin improvement
President and Chief Executive Officer Rob McGibney said KB Home’s built-to-order model helped the company manage demand softness by allowing it to sell homes before beginning vertical construction. Built-to-order homes represented 74% of third-quarter deliveries, up from 60% in the second quarter and above the company’s target for returning to a predominantly built-to-order business.
The higher built-to-order mix contributed to sequential gross-margin improvement. Housing gross profit margin was 16.5%, compared with 18.2% a year earlier. Excluding inventory-related charges, adjusted housing gross profit margin was 16.8%, up from 15.7% in the second quarter but down from 18.9% in the prior-year quarter.
McGibney said the company’s unsold inventory was 26% of production, down from 41% a year earlier, while finished unsold homes were 9% of production, compared with 16% a year ago. KB Home also had roughly 1,100 homes sold but not yet started at quarter-end.
The company’s build-to-order homes averaged 99 days from start to completion, an improvement of 23 days, or 19%, from the prior year. KB Home is working toward a 90-day construction-cycle target, McGibney said.
KBHS Home Loans, the company’s mortgage joint venture, captured 85% of third-quarter buyers. The average customer had a 16% cash down payment, or about $76,000, household income of approximately $134,000 and an average FICO score of 742. About 8% of third-quarter deliveries were purchased with cash.
Fourth-quarter outlook moderated
While KB Home maintained its full-year delivery, housing-revenue and margin outlooks largely within its previous ranges, executives lowered their expectations for fourth-quarter average selling price and gross margin.
The company expects fourth-quarter deliveries of 3,000 to 3,500 homes and housing revenues of $1.45 billion to $1.65 billion. Its full-year delivery outlook remains 10,500 to 11,000 homes, while full-year housing revenue guidance was narrowed to $4.9 billion to $5.1 billion.
The midpoint of the fourth-quarter revenue outlook implies an average selling price of approximately $480,000, down from roughly $500,000 implied by the company’s previous guidance. McGibney said the revision was principally related to Southern California, where slower third-quarter sales reduced the number of higher-priced homes expected to close in the fourth quarter and where the delivery mix shifted from prior expectations.
Northern California continued to perform as anticipated, according to management, and its projected fourth-quarter average selling price increased modestly since June. McGibney told analysts the company expects Northern California’s contribution to continue building for several more quarters as additional communities open.
KB Home now expects fourth-quarter housing gross profit margin of 16% to 16.6%, excluding inventory charges, and full-year margin of 16% to 16.2%. Senior Vice President and Chief Accounting Officer Bill Hollinger said the fourth-quarter margin outlook reflects pricing pressure, somewhat higher direct and land costs, and product and geographic mix, including a smaller-than-anticipated contribution from higher-margin West Coast communities.
Management said direct costs for homes started during the third quarter were lower both sequentially and year over year, but costs increased later in the quarter because of fuel, inflation and tariffs. Those later cost increases are expected to affect fourth-quarter deliveries. McGibney said labor availability had generally not been a major issue because housing starts have declined across most markets.
Land investment and shareholder returns
KB Home invested nearly $725 million in land acquisition and development during the quarter while also returning more than $65 million to shareholders through repurchases and dividends. The company repurchased about 890,000 shares, or roughly 1.5% of shares outstanding, at an average price below book value per share.
Mezger said KB Home’s book value per share exceeded $62 at quarter-end. Over the past five years, the company has returned more than $2.1 billion to shareholders through repurchases and dividends and reduced its share count by more than one-third, he said. The company plans up to $50 million in additional repurchases during the fourth quarter.
Inventory increased 5% from the beginning of the fiscal year to $6 billion, and KB Home ended the quarter with more than 61,000 owned or controlled lots. Cash totaled $159 million, while total liquidity was $942 million, including $783 million available under its unsecured credit facility. Its debt-to-capital ratio was 35.7%, compared with 33.2% a year earlier.
KB Home expects to finish fiscal 2026 with 270 to 275 communities, including about 115 new openings during the year and a similar number of sellouts. Management highlighted new Las Vegas Valley communities, including Meriden in Henderson and Sandstone in North Las Vegas, where the company had built an interest list of more than 300 prospective buyers before opening.
Looking toward fiscal 2027, McGibney said KB Home expects to begin with a higher backlog than it had entering fiscal 2026. However, management did not provide formal 2027 guidance, citing volatile market conditions and its focus on completing the current year.
About KB Home (NYSE:KBH)
KB Home (NYSE: KBH) is a homebuilding company that designs, constructs and sells residential properties in the United States. Its offerings primarily include single-family homes, with communities and floor plans intended for first-time buyers, move-up buyers and other owner-occupants. The company also provides homebuyers with opportunities to personalize selected features and finishes through its build-to-order approach.
The company operates in several major housing markets across the United States, including locations in Arizona, California, Colorado, Florida, Idaho, Nevada, North Carolina, South Carolina, Texas and Washington.
