KB HOME Form 10-Q Summary: Quarter Ended February 28, 2026
Business Context and Reporting Period
This report covers the quarterly period ended February 28, 2026 for KB Home, a Delaware corporation engaged in homebuilding and financial services. The company operates four homebuilding reporting segments (West Coast, Southwest, Central, Southeast) and one financial services segment. The filing reflects a challenging market environment characterized by affordability pressures, cautious buyer sentiment, and geopolitical tensions, particularly the conflict in the Middle East which began at the end of the fiscal quarter.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 | Variance |
|---|---|---|---|
| Total Revenues | $1,077.0 million | $1,391.8 million | (23%) |
| Net Income | $33.4 million | $109.6 million | (69%) |
| Diluted EPS | $0.52 | $1.49 | (65%) |
| Housing Gross Profit Margin | 15.3% | 20.2% | (490 bps) |
| Operating Income (Homebuilding) | $33.0 million | $127.3 million | (74%) |
| Cash and Cash Equivalents | $200.5 million | $228.6 million | (12%) |
| Total Liquidity | $1.20 billion | $1.43 billion | (16%) |
| Notes Payable | $1,893.3 million | $1,693.0 million | +12% |
Note: Total liquidity includes cash and cash equivalents plus $998.4 million of available capacity under the Credit Facility.
Material Changes vs. Prior Period
- Revenue Decline: Homebuilding revenues decreased 23% year-over-year to $1.07 billion, driven by a 14% drop in homes delivered (2,370 vs. 2,770) and a 10% decline in average selling price ($452,100 vs. $500,700).
- Margin Compression: Housing gross profit margin fell to 15.3% from 20.2%, attributed to price reductions implemented to stimulate demand, higher relative land costs, and reduced operating leverage.
- Net Orders: Despite revenue declines, net orders increased 3% to 2,846, with a cancellation rate dropping to 12% from 16%.
- Backlog: Ending backlog value decreased 23% to $1.70 billion, though the number of homes in backlog increased 15% sequentially from the prior quarter.
- Debt Utilization: The company drew $200 million on its revolving credit facility, increasing total notes payable. The debt-to-capital ratio rose to 32.9% from 30.3%.
Guidance, Outlook, and Risks
Outlook: Management expects challenging conditions to persist in the near term due to geopolitical uncertainty and affordability issues. However, they maintain a favorable long-term view supported by demographics and undersupply. The company is shifting focus to "Built to Order" homes to improve margins, targeting a 70% mix in the second half of 2026.
2026 Second Quarter Guidance:
- Deliveries: 2,250 to 2,450 homes.
- Housing Revenues: $1.05 billion to $1.15 billion.
- Housing Gross Profit Margin: 15.0% to 15.6% (excluding inventory charges).
- SG&A Expenses: 12.4% to 13.0% of housing revenues.
2026 Full Year Guidance:
- Deliveries: 10,000 to 11,500 homes (lowered from prior guidance).
- Housing Revenues: $4.80 billion to $5.50 billion.
Risks and Contingencies:
- Geopolitical Impact: The conflict in the Middle East has introduced volatility in capital markets and fuel prices, potentially affecting construction costs and consumer confidence.
- Tax Law Changes: The "One Big Beautiful Bill Act" (OBBBA) signed in July 2025 repeals Section 45L tax credits for energy-efficient homes delivered after June 30, 2026, impacting future tax benefits.
- Legal Proceedings: The company is cooperating with a U.S. Department of Justice subpoena regarding ENERGY STAR certified home marketing and inspection practices; the outcome is currently unpredictable.
- Corporate Relocation: KB Home announced plans to relocate its headquarters from Los Angeles to Tempe, Arizona in 2027, which will incur one-time transition costs.
Investor Verification Checklist
- Margin Sustainability: Verify if the 15.3% gross margin can be sustained given the shift to Built to Order homes and potential inflation in construction costs.
- Backlog Conversion: Monitor the conversion rate of the current backlog (3,604 homes) into deliveries, considering the 12% cancellation rate.
- Liquidity Position: Confirm the company's ability to service its debt ($1.89 billion) and fund land investments ($567 million in Q1) without further diluting equity or increasing leverage significantly.
- Regulatory Impact: Assess the financial impact of the DOJ investigation and the loss of Section 45L tax credits on future profitability.
- Capital Allocation: Track the execution of the $850 million remaining share repurchase authorization against the backdrop of lower-than-expected full-year delivery guidance.