KB Home Q4 2023 Earnings Call Transcript

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

Question: John Lovallo - UBS Equities - Analyst : Guys, thank you for taking my questions. The first one is it appears that the sort of slight downshift in home sales revenue or the outlook from $6.5 billion to $7 billion to $6.4 billion to $6.8 billion was driven by the lower 4Q orders. So the first question is, is that is that correct? And if that is correct, rates are down about 50 basis points from when you gave that initial guide. So is there not enough time during the first half of the year, just sort of make up the 300 to 400 home Delta and sort of stay on that $6.5 billion to $7 billion trend?

Question: John Lovallo - UBS Equities - Analyst : Okay. That's helpful. So seems like a little bit of conservatism maybe in terms of the gross margin, it's expected to be about 21% in the first quarter and then 21% for the full year. I mean, are you expecting a relatively flat gross margin in each quarter? And if so, what would drive that consistency versus the normal kind of second half step-up that we would expect?

Question: Stephen Kim - Evercore ISI - Analyst : Great. Thanks a lot, guys. Lot to like here on, obviously strong performance and the market helps you out. But clearly, it gets cleared the markets help you out here in the first five weeks, but you also executed very well. So congratulations on that. My first question relates to on just the absorption rate implied. You don't really give up obviously an order number, but certainly sounds like 2024 in terms of sales per community per month is I don't want to put words in your mouth, but it certainly seems like it's going to be based on your closings guide, but at least as good as what you saw in 2023 and maybe and probably better. And so in that regard, when we look at your historical absorption rate, um, you know, in the past, you were very comfortably in the four plus range on average for the year. You got as high as in the sixes, you know, in 2021. And I'm kind of curious where you feel comfortable with where absorption rates can ultimately settle out. And the reason I am curious about this is because if I look way back into the early two thousands, for example, your absorption rates were substantially higher, United seven per month and that kind of thing. So just curious if you could give us some commentary about where you think a sort of sustainable level for absorptions is for your Company and given the way it's configured today?

Question: Stephen Kim - Evercore ISI - Analyst : All right. That's yes, that's really helpful. I appreciate that. And then your commentary about the margins and the incentives and all that you've talked about the fact that the first five weeks here have gotten off to a good start and the way you're talking about the incentives or the concessions, it sounds like you have really have not really reduce those concessions yet, and you think you may as you go forward, can you help us understand what it is that you think would be the trigger for reducing incentives. Would it be in fact absorptions, let's say, in the in the late 1Q, early 2Q, kind of getting to that five threshold in absorptions or would it be something else?

Question: Alan Ratner - Zelman Partners, LLC - Analyst : Hey, guys, Happy New Year the afternoon and thanks for all the great detail as always. Yes, my first question at you on a similar vein on the incentives it doesn't sound like you really got to complete that incentive game in the fourth quarter. And I think that makes a lot of sense given given yourself strategy and whatnot. But clearly other builders did, which I think is perhaps maybe why orders were a bit lighter than you were expecting coming into the quarter. You seen maybe more of the spec builders begin to dial back those incentives that they were offering into year end? And if so, any idea kind of how much net pricing has moved the year to date from some of your competitors that did play that discounting game?

Question: Alan Ratner - Zelman Partners, LLC - Analyst : Got it. Okay. Makes sense. So maybe a little bit early, but the more the expectation into the spring, but that should come down. And second question on the margin guide. And Jeff, I appreciate kind of the commentary there. I'm just curious what your underlying assumptions are on costs because obviously lumber was a big tailwind in 23 versus 22. You kind of mentioned some of the moving pieces there. I would imagine the beginning of the year is kind of typically when you start to get some price increase announcements from your trades, they're probably seeing and hearing the same things you guys are as far as lower rates. So has that embolden the suppliers, the trades to trying to push the envelope a little bit on costs yet? Or are they are they still kind of content at the current levels? And what's your expectation now for the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 10, 2024 / 10:00PM, KBH.N - Q4 2023 KB Home Earnings Call

Question: Matthew Bouley - Barclays Bank PLC - Analyst : Good afternoon, everyone. Thanks for taking the questions. So you guided your ending backlog or you've gotten your deliveries, the ratio of ending backlog to deliveries of 40%, which is very normal versus pre-COVID times, as you mentioned, the blood better in the past couple of years of course. So just cycle times where they stand today, kind of get you there or would you still need some further improvement in cycle times on, you know, in order to get to that number relative to where your backlog is today.

Question: Matthew Bouley - Barclays Bank PLC - Analyst : Yes. Got it. Okay. Thank you. And then, Tom. So I think in terms of spec, I think you said 30% of your production was unsold. I'm correct me if I'm wrong, but I recall in years past that maybe a little higher, you might have been closer to more like 20% you have today is a little higher than normal. And can you remind us if there is any margin differential on kind of spec homes versus the build to order and how you're thinking about any margin impact from mix of higher spec in 24?

Question: Michael Rehaut - JP Morgan Chase & Co. - Analyst : Thanks. Good afternoon and thanks for taking my questions. First, I just wanted to zero in a little bit again or on the first quarter gross margin?

Question: Michael Rehaut - JP Morgan Chase & Co. - Analyst : Right. Okay. No, that's that's helpful, Jeff, appreciate that. I guess secondly, on the SG&A guide, I'm looking for it to be about flattish or maybe up 10 bps year over year, and that is against a revenue range that is flat to up 7%. I'm just kind of curious, let's for argument's sake, and I know the midpoint is obviously maybe up 3.3%, 3.5% caps, you're just you're kind of saying relatively modest revenue growth, not a lot of operating leverage, but to the extent that we were to see the higher end of that range at 7%, would it be fair to assume or expect some level of modest SG&A leverage on that scenario? Or kind of are there other factors that are what kind of press that for for fiscal 20 for sure.

Question: Jay McCanless - Wedbush Securities Inc. - Analyst : Great. Good afternoon. Thanks for taking my question. On the first one I had it seems like you have more tailwinds this year between the cycle time getting better and sounds like incentives may be coming off a little bit, but could you talk about why you're not expecting any improvement in the full year gross margin for 24 versus 23?

Question: Jay McCanless - Wedbush Securities Inc. - Analyst : And my second question, could you talk about how many communities you were able to raise pricing during the quarter. And as part of that as a kind of a two-parter was the price action in terms of competition from the other builders, was it as frenetic as what you saw in 22 or in the fall of 22? Or was it a little more well behaved this year.

Question: Susan McCleary - Goldman Sachs - Analyst : Thank you. Good afternoon, everyone. Thanks for squeeze. My first question is, can you talk a bit about the just low level of activity you're seeing in the design centers, anything that changed there as we've seen the move in rates?

Question: Susan McCleary - Goldman Sachs - Analyst : Yes, sorry. I'm on a train and so I don't. Can you hear me better now?

Question: Susan McCleary - Goldman Sachs - Analyst : Okay. So just wondering if there was any change in the in sort of the trends that you were seeing in the design centers through the quarter and even into the first couple of weeks of this year, just given the move in rates?

Question: Susan McCleary - Goldman Sachs - Analyst : Okay. And then I guess any thoughts just as we think about this year and priorities for uses of cash and you talked about still having some availability on the buybacks in there and just how you're thinking about that relative to perhaps land spend and some of the other larger buckets?

Question: Alex Barron - Housing Research Center, LLC - Analyst : Thanks, guys. From P&O in the last couple of years with the rising rates, a lot of builders have moved more towards us offering spec homes, and I guess it was understandable. But now that rates are going down? Are you guys seeing more demand for build to order? And is there any way you can gain share measure that?

Question: Alex Barron - Housing Research Center, LLC - Analyst : Great or best of luck.

Question: Joe Ahlersmeyer - Deutsche Bank Securities Inc. - Analyst : Hey, thanks a lot, everybody for the question. I'll actually just patch my questions into one here. Given the time. The first one on the percentage of your land that you own and put under control before land inflation, can you just speak to maybe the DM development cost inflation that may have come in after that or will continue to come in after inflation to cold in that part of the process? And then two, if you could just maybe provide a little additional detail on this CALIFORNIA tax credits price.

Question: Jade Rahmani - Keefe, Bruyette & Woods North America - Analyst : Thank you very much. Could you provide any regional commentary on how demand is holding up specifically on California and for possible also Phoenix and the Sunbelt markets? Thanks.

Question: Jade Rahmani - Keefe, Bruyette & Woods North America - Analyst : Thank you. And as a follow up, the Sunbelt market has really high multifamily supply right now and it concerns about competition. With that, I'm going into the spring selling season?