KB Home Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Lovallo - UBS Eqities - Analyst : Hi, guys. Thank you for taking my question. First one just could just kind of trying to do is quickly the back-of-the-envelope math. It looks like the outlook would sort of imply that fourth quarter revenue of about call it $1.9 billion, so call 14%-ish sequential step up from the third quarter. And it seems like gross margin will be relatively flat third quarter, to fourth quarter and the way we thinking about it. So first question is, are we thinking about that correctly? And why would there not be a little bit more leverage on the gross margin front? What are the kind of the puts and takes there?

Question: John Lovallo - UBS Eqities - Analyst : Yeah. May make sense. Okay. And then on the land front, the owned and controlled lots, I think a lot of last quarter you had what you needed to satisfy 2025 deliveries and now you're talking about through the majority of 2026. I guess first part of that is how would you sort of frame your confidence in the near term demand is that you're feeling better about that versus just kind of building the pipeline? And secondarily, I mean, would we expect you to sort of take your foot off the gas at this point? Or how are you thinking about future land spend?

Question: Stephen Kim - Evercore ISI - Analyst : (technical difficulty) take on the longer-term outlook for growth. I think you sort of talked about what you're expecting in there here in the next quarter or so a quarter or two. But from a longer-term perspective, can you give us a sense for what kind of volume growth or revenue growth, you are setting your land strategy up to be able to achieve?

Question: Stephen Kim - Evercore ISI - Analyst : Yes, got it. That's great. That's exactly what I was looking for. And so that kind of leads to my second question, which relates to absorption. I guess that those kind of numbers suggest that you expect to have discussions here (technical difficulty) you've talked about the rapid absorption or a little above historical levels (technical difficulty) and whether or not we can expect is to -- why we can expect this to be kind of a new normal or larger (technical difficulty) some of the increase in absorptions or are there other things that we should be thinking about there?

Question: Michael Rehaut - J.P. Morgan Securities LLC - Analyst : Great. Thanks, everyone. Thanks for taking my questions. Good afternoon. I wanted to first kind of zero in a little bit on how you felt demand has progressed throughout the quarter and even so far into the third quarter rates, obviously, rate came up a bit about the 1 month, 1.5 it's come down a little bit more recently. Has this impacted, as you kind of alluded to earlier, maybe incentives being elevated a little bit more in terms of mortgage concessions or other areas of closing cost, perhaps. Just wanted to get a sense for how demand and pricing has progressed and any take on the last several weeks with the most recent move in rates.

Question: Michael Rehaut - J.P. Morgan Securities LLC - Analyst : Okay. That's very helpful. I appreciate that. I guess secondly, would love to just get your thoughts on how to think about gross margins maybe a little bit longer term and you look at what you did from 2013 to 2018, 2019, we averaged about 17% -- 18% you kind of been more consistent in the last year, 1.5 around 21% mid 21%. And what's changed in your view that that's kind of allowed you to hold on to this higher level? And, I don't want to put words in your mouth. So you had two factors that come to mind. But what are your thoughts on the sustainability of the current margins? And if you decide to continue to shift perhaps a little bit more to option lots, which sometimes carry a lower gross margin. And if that any potential strategy shifts might impact that going forward.

Question: Alan Ratner - Zelman & Associates - Analyst : Hey, guys, good afternoon. Nice quarter and thanks for all the detail so far. First question maybe this is digging in a little bit to the regional trends a bit. But we have seen you mentioned obviously, rates have stayed higher for longer than expected. I think probably the one other macro development that may or may not be surprising as we have seen, resale inventories are moving higher in certain markets that are at a pretty decent rate, albeit off of incredibly low levels. And if I look at your order performance by region, the Southeast kind of stands out a little bit on roughly flat sequentially orders. And normally you would see a 20% to 30% sequential uptick in your second quarter. In that also kind of overlaps where we've seen some pretty decent increases in resell inventory. So we just hoping you can kind of discuss a little bit what you're seeing on the resale front. Do you feel like you are seeing more competition in certain markets? And if so, what are you doing to respond to that?

Question: Alan Ratner - Zelman & Associates - Analyst : Perfect. And I appreciate that detail. Second question on the land front. So your total lot count increased 18% sequentially in that I got to go back to second quarter of 2004 to find a quarter where your lot count rose by such a meaningful rate. I know when we've talked about this in the past. One of the things you always highlighted a lot of these deals are either in due diligence or has been kind of tied up or locked in way before it shows up as an increase in your lot count. So I'm not assuming you went out and all of a sudden contracted for 10,000 loss this quarter. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 18, 2024 / 9:00PM, KBH.N - Q2 2024 KB Home Earnings Call But I was hoping you can give us a little color in terms of, where are these lot center, what type of negotiation or pricing, what that has been given the fact that it seems like this growth has all come through auction lots as opposed to owned. It is a pretty significant one quarter increase compared to what we've seen historically.

Question: Susan Maklari - Goldman Sachs & Company, Inc - Analyst : Thank you. Good afternoon. Thanks for taking the questions. My first question is I wanted to go back a bit to the gross margin, you made a comment that you have seen lot premiums and upgrades that are benefiting the profitability of the business. Can you quantify that? And then can you also talk to the potential upside from there. As you think about rates coming down and your buyers perhaps having a bit more purchasing power where that could go over time and how it could benefit profitability?

Question: Susan Maklari - Goldman Sachs & Company, Inc - Analyst : Yeah, okay. That's helpful color. And then maybe thinking about the consumer at a higher level, there's been a lot of different data points that have come through and comments from various companies, across the consumer landscape in the last couple of months or so. And even your competitor this morning made some comments about consumers perhaps being under more financial stress, which seems like that's in contrast to the stats that you gave around your buyer in your prepared comments. I guess when you step back, how do you think about the health of the consumer and the buyer that's coming through today? And has it changed at all? Are you seeing anything different in there? And how do you think about the profile of the businesses as perhaps rates start to come down and we expand pool of demand. I think you touched on it, Susan. I was -- we quote -- Rob quoted in his script, the income levels, the FICO score and how much they're putting down as observed it's a well-heeled first-time buyer. But their debt loads are up. You see it in the statistics. Credit card balances are higher, car loans, whatever it is. There's a lot of pressure in there in their cost of living outside of homeownership. So we are very sensitive and in tune to doing what we can to help improve affordability. And I think if rates came down, it would help a lot of things, but we don't assume rates are going to come down anytime soon. So you have to navigate through it and we're benefiting as the buyer demand is strong enough that you're able to operate your business pretty successfully with this higher credit profile customer. But I think we would say to that they're a little more credit challenged and there's a little more debt burden, then there was a couple of years ago.

Question: Jay McCanless - Wedbush Securities - Analyst : Thanks for taking my questions. I guess, Rob, could you talk more about what was going on in the Southeast and also in the West region during the quarter, I know you said absorptions were pretty solid relative to the overall average, but the orders were down there. Is that a function of communities and do you expect to catch up on the community side in those regions later this year? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 18, 2024 / 9:00PM, KBH.N - Q2 2024 KB Home Earnings Call

Question: Jay McCanless - Wedbush Securities - Analyst : Got it. And then just on gross margin, it sounds like you're getting a decent amount of pricing not big pricing, but enough to cover mortgage concessions. It also sounds like you might have a positive product shift with more California in the fourth quarter. I guess why not be a little more aggressive on the gross margin guide for especially for the full year. What's holding you back there?