KB Home FY2026 Q3: $1.30B Revenue and a Backlog Growing Again

KB Home sold fewer houses for slightly less money and still posted the quarter its strategy promised. Fiscal third-quarter revenue fell 20% to $1.30 billion and net income dropped 41% to $65.3 million, yet built-to-order homes reached nearly three-quarters of deliveries, housing gross margin rose 130 basis points sequentially to 16.5%, and ending backlog grew for the first time in four years. This is a smaller company executing a deliberate trade: fewer speculative starts, richer per-home economics, and an order book that finally points up. KB Home's Q3 release

The Headline Numbers​

The quarter ended August 31, 2026. Financial amounts below are millions of US dollars, except per-share and per-home data.

The per-share decline is gentler than the net-income decline because the share count keeps shrinking: diluted shares fell to 61.8 million from 67.7 million, as $50.0 million of Q3 buybacks (0.9 million shares) extended a nine-month program totaling $175.0 million. The effective tax rate dropped to 19.6% from 23.3%, mainly on excess tax benefits from stock-based compensation — a $3–4 million tailwind worth noting, since the guided Q4 rate snaps back to approximately 26%. Pretax income also includes a $3.5 million gain on the sale of an equity investment in a private technology company. Quarterly financial tables

The nine-month picture is harsher than the quarter, which is precisely why the sequential improvement matters:

Nine-month net income fell 61.5% while Q3 net income fell 40.6%: the first half was the trough, and the third quarter is climbing out of it. Whether that climb continues depends on orders, not deliveries — and orders are the one line still falling.

Revenue Deep Dive: Housing Is the Company​

Housing is 99.6% of revenue, so the segment story is the volume story. Deliveries fell 19.5% to 2,732 while average selling price slipped only 0.6% to $473,000 — and sequentially, both improved: Q2 delivered 2,395 homes at $461,900, so volume rose 14% and price rose 2.4% quarter over quarter. KB Home is not buying sales with price cuts; it is selling fewer homes at roughly stable prices. Supplemental information

Built-to-order is the mix shift that matters. CEO Robert McGibney said the company "made significant progress and have now achieved our goal of returning to a predominantly Built to Order business, with BTO homes representing nearly three-quarters of our deliveries in the third quarter, which contributed to our sequentially higher housing gross profit margin." A BTO buyer chooses options and upgrades before construction; a spec buyer takes what is standing. The first carries a richer margin almost by definition, and KB Home's FY2025 10-K confirms the direction of travel: after faster build times since mid-2023, management "intend[s] to bring our mix of homes delivered closer to our historical average" of BTO. The quarter shows that intention becoming arithmetic.

Financial services is the KBHS mortgage joint venture plus title and insurance, and its pretax income of $7.4 million — down from $8.7 million "primarily reflecting lower results from title and insurance operations" — is equity-method income, not revenue. Our ledger models it as its own Income:FinancialServices line for exactly that reason: a mortgage-JV pickup behaves nothing like a home sale, and folding it into revenue would flatter the top line by $7.4 million every quarter.

The management scan found none of the seven bullish themes — no claim of demand exceeding supply, no upcycle language, no pricing momentum. Executive Chairman Jeffrey Mezger said plainly that "conditions weaken[ed] since our June earnings report" as "higher mortgage interest rates have further pressured affordability." What management does claim is execution within a weak market: "solid sequential improvement," BTO mix, and "year-over-year community count growth" from "a significant number of new community openings." The ledger confirms the first two; community count confirms the third, with the average count up 8% to 279.

The Margin Story: Up Sequentially, Down Year Over Year​

Housing gross margin is company reported; SG&A divides selling, general and administrative expense by housing revenue; net margin divides net income by total revenue. The Q2 figures come from the Q2 10-Q; the annuals from the FY2025 and FY2024 10-Ks.

Read the table in two directions. Year over year, Q3 margin fell 170 basis points to 16.5% (16.8% excluding $3.0 million of inventory-related charges, versus 18.9% a year ago) on "continued pricing pressure, higher relative land costs and reduced operating leverage." Sequentially, it rose 130 basis points from 15.2%, and the release credits the BTO mix directly. Both statements are true; the sequential one is the reason to keep watching.

SG&A tells the operating-leverage story in reverse: 11.3% of housing revenue versus 10.0% a year ago, "mainly due to a decrease in operating leverage, partly offset by lower costs associated with certain performance-based employee compensation plans and personnel reductions." Management is cutting overhead into the downturn — headcount reductions plus lower bonus accruals — but revenue is falling faster than costs can follow. The sequential move helps here too: 12.7% in Q2 down to 11.3% in Q3 as revenue recovered.

One margin item deserves isolation rather than admiration: the 19.6% tax rate. It added roughly $5 million to net income versus the guided 26% Q4 rate, and the release attributes it to stock-compensation tax benefits — a function of option exercises, not operations. Q4 guidance assumes approximately 26%, so the Q3 bottom line carries a one-way tailwind the next quarter will not repeat.

The One Big Question: Is the Order Book Rebuilding?​

Backlog is the section this quarter. Net orders of 2,604 fell 12% year over year, and monthly orders per community slowed to 3.1 from 3.8 — demand is still soft. Yet ending backlog rose 2% in units to 4,398 homes and 3% in value to $2.05 billion, "increased for the first time in four years." Orders down, backlog up: the arithmetic works because deliveries fell faster than orders. That is stabilization by subtraction, not by strength — but after four years of draining the order book, stabilization is the necessary first step.

The right comparison is the homebuilder that already has a ledger. Lennar reported the same quarter three weeks earlier, and the side-by-side shows two companies in the same storm steering differently — see Lennar's Q3 analysis for the full peer ledger:

Lennar chose volume: deliveries down only 3.4% on 12% sales incentives, holding communities and pushing units through. KB Home chose price and mix: deliveries down 19.5% with ASP essentially flat, BTO at three-quarters of the mix, and a gross margin 70 basis points above Lennar's. Lennar's earnings fell further (-52.0% attributable) despite the smaller revenue decline, weighed down by a $152.6 million technology-investment swing KB Home has no equivalent of. Neither order book is growing — Lennar's orders fell 9.2% on a larger community base too — but KB Home's backlog turn is the first positive print either company has shown.

The balance sheet constrains how long KB Home can wait for demand. Notes payable rose to $2.11 billion from $1.69 billion at year-end on $415.0 million of revolving-credit drawings, lifting debt to capital to 35.7% from 30.3%. Inventories grew 5% to $5.98 billion while quarterly land investment jumped 40% to $722.3 million — management is still buying land into a soft market, even as total lots owned or controlled fell 5% to 61,581. Liquidity of $942.4 million ($159.0 million cash plus $783.4 million of revolver capacity) covers the near term, but the direction is unmistakable: leverage up, inventory up, cash down 30% from year-end. The BTO strategy must convert backlog into cash before the revolver becomes structural.

Guidance holds the line: full-year deliveries of 10,500–11,000 homes, housing revenue of $4.90–5.10 billion, and housing gross margin of 16.0–16.2% excluding charges. With nine-month deliveries at 7,497, the Q4 implied range is 3,000–3,500 homes — management's own Q4 guide — at margins roughly where Q3 printed. No heroics required, but no room for another demand leg down either.

Tracking a $7.0 Billion Balance Sheet in Plain Text​

Double-entry modeling forces the earnings story and balance sheet to reconcile. Our ledger follows how we model every company, with amounts in millions of US dollars, or MUSD.

; Check: -1292.350 + 1078.590 + 146.626 + -4.518 + -2.147 + -7.381 + 15.900 + 65.280 = 0
2026-08-31 * "KB Home" "FY2026Q3 Income Statement"
  Income:Revenue                                      -1292.350 MUSD  ; homebuilding: all housing, no land sales
  Expenses:CostOfRevenue                               1078.590 MUSD  ; housing construction and land costs
  Expenses:SellingGeneralAdministrative                 146.626 MUSD
  Income:OtherNet                                        -4.518 MUSD  ; interest income and other, incl. a $3.5M tech-equity sale gain
  Income:OtherNet                                        -2.147 MUSD  ; equity in income of unconsolidated JVs
  Income:FinancialServices                               -7.381 MUSD  ; FS pretax: rev 4.751 - exp 1.464 + JV equity 4.094
  Expenses:IncomeTax                                     15.900 MUSD  ; 19.6% effective rate on 81.180 pretax
  Equity:Adjustments                                     65.280 MUSD  ; net income offset; retained earnings set by balance assertion

Income postings carry negative amounts; expense postings carry positive amounts. Homebuilding revenue of $1,292.350 million less construction costs of $1,078.590 million leaves $213.760 million of housing gross profit — the 16.5% margin, computed from ledger lines rather than quoted from the release. Interest expense never appears: KB Home capitalizes all of it ($31.520 million incurred, $31.520 million capitalized), so financing cost sits in inventory until the home sells.

The balance sheet ties exactly: assets of $6,969.152 million equal liabilities of $3,167.643 million plus equity of $3,801.509 million. The number that tells the narrative is inventories at $5,981.182 million — 86% of total assets and up 5% since year-end while revenue fell 20%. One disclosure limit is honest rather than hidden: the earnings release gives only total stockholders' equity, so the ledger carries the FY2025 equity components forward and absorbs the nine-month net change in retained earnings, flagged in the file for the Q3 10-Q to refine. Totals are as filed either way.

The ledger spans five full fiscal years plus the latest quarter, so the margin collapse from 24.3% in FY2022 to 15.2% in Q2 — and the first step back — is visible line by line rather than asserted in prose.

The Multi-Year Arc​

Revenue and margins are from the FY2021, FY2023 and FY2025 10-Ks; deliveries, ASP and housing margins from each year's operating table.

FY2022 was the peak of everything: record revenue, record $816.7 million of net income, a 24.3% housing margin, and a $500,800 ASP the company has never recovered. What followed was not a crash but a grind — revenue oscillating around $6.5 billion while margins bled 570 basis points over three years. The share count tells the quieter compounding story: diluted shares fell from 93.6 million in FY2021 to 69.3 million in FY2025, so FY2025 EPS of $6.15 actually exceeds FY2021's $6.01 despite net income falling 24%. Buybacks — including a 27.6-million-share treasury retirement in FY2024 — have carried more of the per-share story than operations for three years.

Inventories deserve the last column because they are the cycle bet made visible: up 18% from FY2021 to $5.67 billion at FY2025 year-end, and up again to $5.98 billion in Q3, even as deliveries shrink. KB Home is stocking land and work-in-progress for a recovery while funding it with revolver debt. If orders reaccelerate, that inventory converts at BTO margins. If they do not, it is $6 billion of carrying cost.

The Verdict: Bull vs. Bear​

Bull case

• Housing gross margin rose 130 bps sequentially to 16.5% on BTO mix at nearly three-quarters of deliveries — the strategy's central mechanism is working.
• Ending backlog grew for the first time in four years (+2% units, +3% value), with 4,398 homes worth $2.05 billion entering Q4.
• Sequential revenue (+16.6%), deliveries (+14.1%) and ASP (+2.4%) all improved from Q2, so the first half looks like the trough.
• Full-year guidance held on deliveries, revenue and margins implies a Q4 roughly like Q3 — achievable without heroic demand.
• Book value per share rose 4% to $62.56 while buybacks continued, compounding equity even in a down year.

Bear case

• Net orders still fell 12% and monthly pace slowed to 3.1 per community from 3.8 — backlog grew because deliveries collapsed faster, not because demand strengthened.
• The 19.6% tax rate flatters Q3 net income by roughly $5 million and reverses to ~26% in Q4; the $3.5 million tech-equity gain is similarly non-recurring.
• Debt to capital hit 35.7% on $415 million of revolver drawings while cash fell 30% from year-end — leverage is rising into weakness.
• Inventories at $5.98 billion (86% of assets) keep growing against falling sales; a further demand leg down turns the land bet into impairment charges, already $3.0 million this quarter.
• None of management's commentary claims demand strength — "conditions weakening since our June earnings report" is the opposite signal, and the cancellation rate ticked up to 18%.

Our take: KB Home is managing a downturn about as well as a homebuilder can — protecting price, shifting mix toward richer BTO orders, and holding guidance — but the quarter's best number, backlog growth, is arithmetic rather than evidence of returning demand. We would turn constructive when net orders per community stabilizes, not before. Until then this is a well-run shrinking business funding its land appetite with debt, and the ledger's inventory line is where that tension will resolve first.