- Total Revenues: $1.3 billion in Q3 fiscal 2026.
- Housing Revenues: $1.3 billion, at midpoint of guidance; down 20% from $1.6 billion year-over-year.
- Net Income: $65 million, compared to $110 million a year earlier.
- Diluted EPS: $1.05, versus $1.61 in the prior-year quarter.
- Homes Delivered: 2,732 homes, a 19% year-over-year decrease.
- Average Selling Price: $473,000, modestly higher than Q2; Q4 guidance implies ~$480,000.
- Housing Gross Profit Margin: 16.5%, down from 18.2% year-over-year; up sequentially from Q2.
- Adjusted Housing Gross Profit Margin: 16.8%, versus 18.9% a year ago; improved sequentially from 15.7% in Q2.
- Home Building Operating Income: $67 million, or 5.2% of revenues, versus $131 million, or 8.1%, a year earlier.
- SG&A Ratio: 11.3%, at low end of guidance; up from 10% year-over-year.
- Pre-Tax Income: $81 million, compared to $143 million a year earlier.
- Effective Tax Rate: 19.6%, versus 23.3% prior year; Q4 expected ~26%, full year ~23%.
- Backlog Conversion Rate: 60%, compared to 71% a year ago.
- Built-to-Order Mix: 74% of deliveries, up from 60% in Q2.
- Unsold Inventory: 26% of production, down from 41% a year ago; finished unsold homes 9%, down from 16%.
- Cash: $159 million at quarter end.
- Total Liquidity: $942 million, including $783 million available under unsecured credit facility.
- Debt-to-Capital Ratio: 35.7%, compared to 33% a year ago.
- Inventory: $6 billion, up 5% year-over-year.
- Lots Owned or Controlled: Over 61,000 lots.
- Share Repurchases: ~890,000 shares (~1.5% of shares outstanding) at average price below book value; up to $50 million planned for Q4.
- Capital Returned to Shareholders: Over $65 million in Q3, inclusive of dividends.
- Book Value Per Share: Over $62.
- Community Count: Q4 ending community count expected between 270 and 275, roughly in line with prior year.
- Mortgage Capture Rate: 85%, up slightly from Q2.
- Average Cash Down Payment: 16%, or about $76,000.
- Average Buyer Household Income: ~$134,000; average FICO score 742.
- All-Cash Buyers: ~8% of Q3 deliveries.
- Build Times: 99 days start-to-completion, 19% faster year-over-year; target of 90 days.
- Release Date: September 22, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KB Home KBH +0.44% 83met or exceeded guidance across all metrics in Q3 2026, with housing revenues of $1.3 billion and diluted EPS of $1.05.
- The company successfully returned to a predominantly built-to-order model, with BTO homes comprising 74% of deliveries, up from 60% in Q2, driving a sequential improvement in housing gross margin.
- KB Home (KBH) achieved a year-over-year increase in backlog for the first time in four years, providing a foundation for future deliveries.
- Unsold inventory remains low, with total unsold inventory at 26% of production (down from 41% a year ago) and finished unsold homes at just 9% (down from 16%).
- Build times improved to an average of 99 days, down 19% year-over-year, enhancing inventory turns and operational efficiency.
- The company maintains a strong balance sheet with $942 million in total liquidity and a debt-to-capital ratio of 35.7%, supporting growth and shareholder returns.
- KB Home (KBH) returned over $65 million to shareholders in Q3 through share repurchases and dividends, and plans up to $50 million more in Q4 repurchases.
- The company has a solid land pipeline with over 61,000 owned or controlled lots, positioning it for future growth when market conditions improve.
Negative Points
- Market conditions weakened since the last earnings call, with rising mortgage rates, persistent inflation, and geopolitical uncertainty dampening consumer demand.
- Net orders declined year-over-year as sales softened sequentially in July and August, with traffic down and buyers becoming more cautious.
- Q4 guidance was moderated: average selling price is now expected at ~$480,000 (down from ~$500,000) and gross margin is expected to be about one percentage point lower than prior guidance.
- Housing gross profit margin declined to 16.5% in Q3 from 18.2% a year ago, reflecting pricing pressures and higher costs.
- Direct costs are expected to rise sequentially in Q4 due to fuel surcharges, general inflation, and tariffs, pressuring margins.
- Resale inventory has increased to its highest level in a decade, with pricing starting to decline in more markets, adding competitive pressure.
- SG&A expense ratio increased to 11.3% from 10% a year ago, due to lower operating leverage, though partially offset by cost reductions.
- Debt-to-capital ratio rose to 35.7% from 33% a year ago, reflecting increased inventory investments and share repurchases.
Q & A Highlights
Q: With KB Home having achieved its goal of returning to a predominantly built-to-order business model, is the long-term gross margin target of 22% still in play?
A: Robert McGibney, President and COO, confirmed that 22% remains the target. He noted that current market conditions are not conducive to hitting that margin, but the company is sticking to its underwriting discipline, which has led them to walk away from land deals that no longer meet their return criteria.
Q: Given the current market conditions, is the fourth quarter gross margin representative of the mix (built-to-order, Northern/Southern California) we should expect for the first half of 2027?
A: Robert McGibney, President and COO, stated that Q4 guidance is based on current conditions. He expects the Southern California mix to rotate back in, as the current weakness was partly due to missed openings of high-ASP communities. While not giving 2027 guidance, he expressed pleasure with the shift back to built-to-order and aligning starts with sales.
Q: Can you bridge the gross margin from Q3 to Q4, detailing the puts and takes?
A: William Hollinger, CFO, explained that the sequential decline from 16.8% in Q3 to an anticipated 16.3% in Q4 is due to pricing pressures, higher costs, and product/geographic mix (specifically Southern California). These negative factors are expected to more than offset a positive contribution of about 50 basis points from operating leverage.
Q: With the shift to built-to-order and a backlog of pre-sold homes, are you forced to offer incentives at the closing table when rates rise, to keep buyers in the deal or help them qualify?
A: Robert McGibney, President and COO, said it does happen, but it's minimal. The primary strategy is to lock in buyers' interest rates early in the process, which is easier with the current ~90-day build time. While some minor adjustments are made in backlog, it is not a significant overall cost.
Q: Can you provide an update on the pipeline for the high-margin Bay Area communities and how long you expect an outsized contribution from them?
A: Robert McGibney, President and COO, said the company is rebuilding its Northern California business to its former strength. He expects a few more quarters of ramping up as new communities come online, after which the business will find a new equilibrium. He expects a mix benefit to continue into 2027.
Q: With mortgage rates moving higher, how should we think about your willingness to let the absorption pace drift lower to protect gross margin? Is there a floor?
A: Robert McGibney, President and COO, stated that targets are set community by community based on various factors. While the long-term goal is around four sales per month per community, the company is not looking to force that pace at the expense of margin in the current choppy market. The focus is on managing each asset for the best return profile.
Q: Can you discuss the increase in land spend this quarter and how we should think about it going forward?
A: Robert McGibney, President and COO, explained that the increase is mostly related to development and fees for land that was previously purchased, rather than new raw land acquisitions. This is part of the normal progression of their land pipeline.
Q: Can you provide more detail on the value engineering efforts and how they will impact future quarters?
A: Robert McGibney, President and COO, described value engineering as an ongoing process, not a one-time event. Current efforts focus on standardization, such as simplifying floor plans and building envelopes, to reduce costs without taking value away from the customer. This is a continuous focus for the architecture team.
Q: You mentioned seeing additional pricing pressure from the resale market. Are there specific markets where this is having a more outsized impact?
A: Robert McGibney, President and COO, said the impact is very submarket-specific. While markets like Texas and Florida have elevated resale inventory, the competitive pressure varies by community. He noted that sellers are starting to become more realistic with prices, which is a positive sign for the market to find balance.
Q: With leverage back at roughly 30%, how much longer can you continue to return more capital to shareholders than you are bringing in on a free cash basis?
A: Jeffrey Mezger, CEO, stated that capital allocation is a disciplined balance of land investment, growth appetite, and cash flow. He noted that land spend may come down a little in the current environment, which will influence the pace of share repurchases. The company will remain programmatic and opportunistic while maintaining a solid balance sheet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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