What happened
KB Home (KBH -0.84%) investors beat a rising market this week. The homebuilder's stock rose 12% through Thursday trading compared to a 0.8% increase in the wider market, according to data provided by S&P Global Market Intelligence. KB Home's stock is trouncing the market so far in 2023, up 24% on the year.
This week's rally came in response to encouraging news from the company on some key sales and earnings metrics.
So what
KB Home this week announced results for its fiscal Q1 period that runs through late February. The company reported a modest 3% drop in sales volumes as the industry felt the pressure from rising mortgage rates. Yet an uptick in average selling prices offset that decline to keep sales stable year over year.
That performance allowed KB Home to edge past Wall Street's expectations on both the top and bottom lines. "We produced solid financial results in the first quarter," CEO Jeffrey Mezger said in a press release.
Now what
Investors were even more encouraged to hear management's optimistic comments about the rest of the fiscal year ahead. Sales trends started improving late in Q1, executives said, and order volumes were strong in the early weeks of March. "We are encouraged by this progression," executives said.
Major challenges remain around rising interest rates and a potential recession on the way in the U.S. market. The housing market would likely contract in that scenario following several years of strong growth.
But KB Home's updated 2023 outlook calls for roughly steady sales and pricing. Gross profit margin is on track to stay above 20% of sales, too, which would support strong earnings this year. Given that solid performance in a weaker housing market, it is understandable that investors would become more optimistic about KB Home's positioning for the eventual cyclical industry upturn ahead.
