The homebuilder topped estimates on revenue and earnings and grew its backlog for the first time in four years. Shares still slipped, because the guidance for the next quarter points the other way as mortgage rates hit a two-year high.
On paper, KB Home's third quarter was a beat. Revenue came in at $1.30 billion, just above the $1.294 billion analysts expected, and diluted earnings of $1.05 a share cleared the 89-cent consensus comfortably. Shares still slipped about 2% in extended and premarket trading.
The reason sits in what the company said about the months ahead. KB Home guided fourth-quarter housing gross margin to a range of 16% to 16.6%, below the 17.2% analysts had expected, and its projection for fourth-quarter deliveries also came in under forecasts. A beat on the quarter just ended did not outweigh a softer outlook for the one underway.
The year-over-year comparison shows how much pressure the business has absorbed. Revenue fell 20%. Net income dropped to $65.3 million from $109.8 million, and diluted earnings per share fell from $1.61 a year earlier. Homes delivered declined 19% to 2,732, while the average selling price held roughly flat at about $473,000. Housing gross margin compressed to 16.5% from 18.2%.
There was one genuinely encouraging number. KB Home's backlog rose 2% from a year earlier to 4,398 homes, valued at $2.05 billion, the first year-over-year backlog increase in four years. Average community count grew 8%, giving the company more places to sell. The company also kept returning cash, buying back $50 million of stock in the quarter and $175 million so far this year, with $725 million of authorization remaining.
That sets up the central tension in the report. A rising backlog says buyers are still signing contracts. A lower margin outlook suggests KB Home is giving up profitability on each home to keep them signing. The environment is not helping. The average 30-year fixed mortgage rate rose to 7.12% last week, its highest level since 2024, and mortgage applications fell.
For investors, the question is which of those two signals leads. If the backlog growth holds as rates climb, KB Home's margin compression may prove to be the cost of defending volume in a difficult quarter. If higher rates start eating into new orders too, the fourth-quarter margin guide may turn out to be the first step rather than the bottom.