KB Home

Second-quarter housing revenues were $1.11 billion, down 27% from $1.52 billion a year ago, reflecting a 23% decline in homes delivered and a 5% decline in average selling price. Diluted EPS was $0.43 versus $1.50 last year, and net income was $27.3 million versus $107.9 million. Homebuilding operating income was $28.2 million versus $131.5 million, and homebuilding operating margin was 2.5% versus 8.6%. Housing gross margin was 15.2% versus 19.3% a year ago; excluding inventory-related charges, it was 15.7% versus 19.7%. Q2 deliveries were 2.4 thousand homes, backlog was 4.53 thousand homes, active communities were 280, and build time on BTO homes improved to 100 days from start to completion, down 8 days sequentially. For Q3, management guided to deliveries of 2.6 thousand to 2.8 thousand and housing revenues of $1.2 billion to $1.35 billion. For full-year 2026, KB Home narrowed delivery guidance to 10.5 thousand to 11 thousand homes and revenue guidance to $4.9 billion to $5.3 billion. Q3 housing gross margin is expected to be 16.0% to 16.6%, and full-year housing gross margin is expected to be 16.1% to 16.5%, assuming no inventory-related charges.

Jeffrey Mezger emphasized that KB Home’s return to a predominantly built-to-order model is a structural change, not just a quarterly mix shift. He said the model improves predictability, lowers risk, supports better gross margins, and gives the company more leverage with trade partners and suppliers. His tone was constructive but measured: he acknowledged a difficult market, said there is more work to do on gross margin, and framed the quarter as the beginning of ongoing improvement.

William Hollinger focused on the financial bridge from Q2 into the second half of the year. He highlighted that adjusted housing gross margin was 15.7%, just above guidance, and guided Q3/full-year margins higher to 16.0% to 16.6% and 16.1% to 16.5%, respectively, citing operating leverage, higher BTO mix, and a favorable West Coast mix shift. He also noted SG&A of 12.7% in Q2, $1.5 million of HQ relocation expense, total liquidity of $1.12 billion including $200 million of cash and $923 million available on the revolver, $275 million of cash borrowings outstanding, and a debt-to-capital ratio of 34.1%.

Analysts pressed management on whether the expected margin uplift and higher fourth-quarter ASPs were unusual, and management said the leverage pattern is largely normal for a year with heavier second-half deliveries. Questions also focused on the Bay Area contribution, with management saying the higher-ASP, higher-margin communities there are part of a broader, structural rebuild of the business rather than a one-quarter boost. Analysts asked about lot count declines, land pricing, and whether M&A could help; management said it is still finding deal flow difficult to pencil, but sees more rational land pricing, some finished-lot opportunities, and no need to force acquisitions that miss return hurdles.