Homebuilder KB Home (NYSE: KBH) beat Wall Street’s revenue expectations in Q4 CY2025, but sales fell by 15.3% year on year to $1.69 billion. Its non-GAAP profit of $1.92 per share was 7.4% above analysts’ consensus estimates.
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KB Home (KBH) Q4 CY2025 Highlights:
- Revenue: $1.69 billion vs analyst estimates of $1.66 billion (15.3% year-on-year decline, 2.3% beat)
- Adjusted EPS: $1.92 vs analyst estimates of $1.79 (7.4% beat)
- Adjusted EBITDA: $134.2 million vs analyst estimates of $190.3 million (7.9% margin, 29.5% miss)
- Operating Margin: 7.3%, down from 11.7% in the same quarter last year
- Backlog: $1.40 billion at quarter end, down 37.4% year on year
- Market Capitalization: $4.06 billion
StockStory’s Take
KB Home’s fourth quarter was met with a negative market reaction, as the company faced a sharp decline in year-over-year sales and reduced operating margins. Management cited persistent affordability concerns and elevated mortgage rates as significant headwinds that caused buyers to take longer to make purchasing decisions. CEO Jeff Mezger noted, “Consumers are demonstrating their interest in buying a home… They’re just taking much longer to make their home buying decisions.” The company maintained a disciplined approach to pricing, resisting aggressive incentives to preserve margin integrity, but this resulted in slower order growth and ongoing pressure from aged inventory built at higher costs impacting near-term profitability.
Looking ahead, KB Home’s guidance is shaped by a strategic shift toward a higher mix of built-to-order (BTO) homes and increased community openings. Management believes this transition will help improve margins as the year progresses, emphasizing operational efficiencies and a return to historical BTO levels. President Rob McGibney explained, “We see a great opportunity to drive that change with the new communities we’ve got coming… as we work the built-to-order model.” Management acknowledged, however, that uncertainty remains around spring selling season demand and continued affordability challenges, signaling a cautious approach for the start of the year.
Key Insights from Management’s Remarks
Management traced the quarter’s results to a combination of slower homebuyer activity, a disciplined pricing approach, and a renewed commitment to the built-to-order model, while also highlighting operational efficiencies and a strategic community expansion.
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Slower consumer decision-making: Leadership reported that buyers are still interested in purchasing homes but are taking longer to commit due to affordability concerns and elevated mortgage rates. This extended decision timeline contributed to lower sales volume and a slower pace of net orders in the quarter.
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Build-to-order transition: KB Home is emphasizing a shift back to its built-to-order model, with management highlighting that new community openings will support this transition. Built-to-order homes historically deliver higher margins compared to inventory (spec) homes, and the company aims to raise the mix from 57% in Q4 toward its historical target of 70% or more.
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Operational efficiencies: The company achieved a roughly 20% year-over-year improvement in build times, reaching its target of 120 days or less from start to completion on built-to-order homes. This improvement enables KB Home to deliver homes more quickly and better align sales with seasonal demand.
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Cost control measures: Management pointed to sequential and annual reductions in direct construction costs per unit, achieved through value engineering and studio simplification. These cost reductions partially offset higher land and regional mix costs, but did not fully mitigate the impact on margins.
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Inventory clearance pressure: The need to clear aged spec inventory—homes built at higher costs during previous supply chain challenges—resulted in short-term margin compression. Leadership expects this headwind to diminish as the company works through existing inventory and shifts its sales mix toward built-to-order homes.
Drivers of Future Performance
KB Home expects future performance to be shaped by the pace of the built-to-order mix shift, community growth, and ongoing affordability constraints impacting buyer demand and margins.
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Built-to-order sales mix: Management anticipates that increasing the proportion of built-to-order homes will improve gross margins, as these homes typically offer three to five percentage points higher margin than inventory homes. The shift is expected to be gradual, with the mix moving from around 57% toward 70% by year-end, but relies on successful execution and buyer acceptance.
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Community count expansion: The company plans to open 35 to 40 new communities in the first quarter, aiming to reach a high point in active communities during the spring selling season. Management believes that new community openings, particularly in higher-priced markets like California, will drive stronger demand and support higher average selling prices through a favorable mix.
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Affordability and demand uncertainty: Elevated mortgage rates and lower consumer confidence remain significant risks, with management acknowledging that the spring selling season is a key variable for meeting delivery targets. The company’s wide delivery guidance reflects uncertainty over whether improved operational execution can fully offset these macro headwinds.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be watching (1) the pace and success of the built-to-order mix transition across new and existing communities, (2) the impact of new community openings—especially in higher-priced markets—on both average selling prices and order growth, and (3) signs of improved margin trajectory as aged inventory is worked down. The evolution of affordability trends and mortgage rates will remain crucial external factors for monitoring demand resilience.
KB Home currently trades at $57.81, down from $62.75 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).
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