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KB Homes reported better than expected Q1 earnings after the market Tuesday on lower than expected revenue from the weatherand power issues in Texas. The stock was higher with other homebuilders after robust order numbers. $KBH had the company's highest backlog level in the last 15 years.

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KB Home NYSE: KBH Reported Earnings After Close Wednesday

$1.02 Beat $0.87 EPS AND $1.14 Billion Missed $1.21 Billion forecast in revenue

Earnings

Homebuilder KB Home (NYSE: KBH) reported earnings of $1.02 per share, up from $0.62 reported in the prior-year quarter. Revenue of $1.14 billion was also up 6% on a year-over-year basis. Analysts had predicted earnings of 87 cents per share on $1.21 billion in revenue.

The housing gross profit margin jumped 340 basis points to 20.8% with the positive impact of lower amortization of previously capitalized interest. KBH managed increased operating leverage due to higher housing revenue.

The results wfollowed peer Lennar (LEN) who reported robust February quarter results on March 16.

KB Home NYSE: KBH

Market Reaction KB Home NYSE: KBH $44.40 ▲ 1.01 (+2.33%) Close March 25,2021

Highlights and Outlook

Chairman and CEO Jeffrey Mezger  "The ongoing strength in our order activity reflects the favorable demographics underlying demand. Millennials, the largest adult population in the U.S., are now in their prime homebuying years and continue to represent our largest cohort of buyers, underscoring our competitive advantage in serving first-time buyers and success in building homes in desirable locations at affordable price points."

Housing details

  • The company built 2,864 homes during the quarter, up from 2,752 homes last year.
  • The average selling price rose 2% to $397,100.
  • The average community count was down 11% to 223.
  • Net orders went up 23% to 4,292 homes for a total appreciation in value of 35% to $1.87 billion.
  • The backlog stood at 9,238 homes, up 59% year over year.
  • KBH had the highest backlog level in the last 15 years.
  • Potential housing revenue arising from backlog amounted to $3.69 billion, up 74%.

Texas Impact

KBH has a high exposure to Texas which saw unusual freezing temperatures that disrupted power to much of the state. The weather disruption in Texas shifted some deliveries from Q1 (Feb) into Q2 (May). 

Texas is the companies largest market by units, and the severe weather shut down operations for roughly 10 days in mid-February.However KBH resumed activity by the last week of the month, and nearly all of the impacted homes have already been delivered.

Financial Update

KB Homes had cash and cash equivalents of $569.8 million at quarter's end, down from $681.2 million in the previous quarter, and total liquidity of $1.36 billion.

Covid-19 impact

Due to the coronavirus pandemic, the U.S. housing market was rigorously disrupted during the first half of 2020, with the combination of supply issues and the unexpected sharp boost to housing demand. KB Home's net orders and backlog were reduced significantly at the outset but soon started rising sharply. '

Low mortgage interest rates also boosted housing demand during the period.

Outlook

"With our full year coming into better view, supported by a 74% year-over-year increase in our backlog value and our ability to match housing starts to net orders, we believe we are now even better positioned for meaningful growth in 2021," Mezger said. "We are executing on our plan to expand our scale while driving both margins and returns higher."

  • Looking ahead to Q2 (May), KBH sees housing revenue rebounding to $1.42-1.50 bln
  • For FY21,  increased its full year guidance by $150 mln to $5.7-6.1 bln.
  • It's important to note that these housing revenue figures are not comparable to consensus, which represents total revenue.
  • In terms of overall market conditions, KBH says supply remains tight, with existing home inventory down nearly 30% yr/yr.

Since the peak of the lockdown slowdown KB Home has experienced growth in its gross and net orders, reflecting strong demand and improvements in housing market conditions. Cancellations (outside of the Texas impact) have dropped so far as compared with the prior period.

Source: KB Homes

Disclosure: I do not hold any positions in the stocks mentioned_

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