KB Home trims Q4 outlook as Southern California pricing pressures hit margins

KB Home (KBH) lowered its fourth-quarter fiscal 2026 average selling price and gross margin guidance, citing slowing sales and increased pricing competition in Southern California, while maintaining its full-year delivery targets. Executive Chairman Jeffrey Mezger noted on the September 22 earnings call that the housing market has weakened since June, with affordability further pressured by rising mortgage rates and persistently high inflation.

The company reported third-quarter fiscal 2026 housing revenues of $1.3 billion, a 20% decline from $1.6 billion in the prior-year period, and net income of $65 million. Diluted earnings per share came in at $1.05, compared to $1.61 a year earlier. KB Home delivered 2,732 homes during the quarter, with built-to-order homes accounting for 74% of deliveries, up from 60% in the second quarter. This shift in mix contributed to a sequential improvement in the adjusted housing gross profit margin to 16.8%, up from 15.7% in the previous quarter.

President and CEO Rob McGibney attributed the fourth-quarter guidance reduction primarily to Southern California, where slower sales reduced the expected volume of higher-priced home closings and shifted the delivery mix. The midpoint of the new fourth-quarter guidance implies an average selling price of approximately $480,000, down from roughly $500,000 in prior guidance. The company now expects fourth-quarter housing gross profit to range between 16% and 16.6%, representing a decline of about one percentage point from previous expectations due to market pressures and higher direct and land costs.

Despite the quarterly moderation, KB Home kept its full-year fiscal 2026 guidance for deliveries between 10,500 and 11,000 homes and housing revenues between $4.9 billion and $5.1 billion. The company reported total liquidity of $942 million at the end of the quarter, including $783 million available under its unsecured credit facility, with a debt-to-capital ratio of 35.7%. KB Home repurchased approximately 890,000 shares during the quarter and plans up to $50 million in additional repurchases for the fourth quarter.