Jim Cramer expects KB Home (NYSE:KBH) to report another weak quarter, as he said on September 18 during the episode of Mad Money:
We’ve got some earnings of consequence too. On Tuesday, KB Home reports. I think it’s going to be one more lousy number from a home builder because how are they supposed to do well when, like, the Fed’s raising rates? I mean, bane of their existence… Theirs is, like, I don’t know, not selling homes. Okay, basically the same thing we heard from Lennar over this week; we could probably hear from KB.
Lennar’s Orders and Margins Show the Pressure
Lennar Corporation (NYSE:LEN) reported approximately $8 billion of revenue in its fiscal third quarter, but new orders fell 9% year over year to 20,879 homes and deliveries declined 3% to 20,840. The average selling price fell 3% to $372,000, while home-sale gross margin dropped to 15.8% from 17.5% a year earlier. CEO Stuart Miller said the company’s results reflected an environment that “has deteriorated since our last earnings call.” He said mortgage rates reached approximately 6.8% at quarter-end and that “rates and affordability have driven more consumers to slow their purchase decision.”
The company also lowered its full-year 2026 delivery target to approximately 80,000 to 81,000 homes from 82,000 to 83,000 previously. For the fourth quarter, it expects 19,500 to 20,500 new orders and a home-sale gross margin of approximately 15.5% to 16%.
KB Home Enters Its Earnings Report With Lower Volume
KB Home’s fiscal second-quarter results showed a similar demand problem before Tuesday’s report. Revenue fell 27% year over year to $1.11 billion, while diluted EPS dropped to $0.43 from $1.50. Deliveries declined 23% to 2,395 homes and net orders fell 4% to 3,317. Its average selling price declined to $461,900 from $488,700.
The company’s backlog value also fell 7% year over year to $2.14 billion, while backlog declined 5% to 4,526 homes. For the fiscal third quarter, management guided to 2,600 to 2,800 deliveries, $1.2 billion to $1.35 billion of housing revenue and a housing gross margin of 16% to 16.6%, assuming no inventory-related charges. KB Home reports after the market closes on September 22.
Bear Case for Both Builders
Higher mortgage rates and affordability pressures can reduce the number of buyers able or willing to purchase homes, leaving builders with less room to maintain both volume and pricing. Lennar Corporation’s reduced annual delivery outlook and KB Home’s lower second-quarter backlog value show that the pressure has already affected forward housing activity, while both companies are guiding to gross margins in the mid-teens.
Hedge Fund Positioning and Short Interest
As per Insider Monkey, which tracks more than 1,000 hedge funds, there were 65 hedge fund holders of Lennar in Q2, down from 66 in Q1. KB Home had 34 holders in Q2, compared with 37 in Q1. Lennar’s short interest was approximately 8.4% of its public float, while KB Home’s was approximately 12.9%.
Lennar Corporation has already reported weaker orders, deliveries, selling prices and margins, while KB Home enters its earnings report with declines in second-quarter revenue, deliveries and backlog value. Tuesday’s results will show whether KB Home is seeing the same combination of weaker demand and margin pressure that Lennar has already reported.
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