Earnings Reports

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KB Homes followed fellow homebuilder Lennar $LEN with soaring revenue in Q2 earnings from the steady U.S. housing recovery. $KBH is benefitting from higher selling prices and increased consumer confidence. The stock rose 4% after the release.

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Reaction: KB Homes NYSE: $KBH

Reaction: KB Homes NYSE: $KBH

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Earnings: EPS of 84 cents on revenue of $1.4 billion beating expected EPS of 77 cents on $1.36 billion revenue.

Earnings:

Quarterly earnings of 57 cents per share beat consensus estimates of 49 cents and up from 33 cents in the year-ago period. Total revenues of $1.1 billion beat the consensus expectation of of $1.05 million. The top line also improved almost 10% year over year, driven by higher housing revenues.

Highlights

Homebuilding Revenues:

  • Homebuilding revenues increased 9.9% from the prior-year quarter to $1,098.7 million, driven by an increase in the number of homes delivered and average selling price or ASP.
  • Land generated $6.9 million in revenues (up 56.5% from the year-ago quarter),
  • Housing revenues was $1,091.8 million (up 9.7%).
  • Net orders increased 3.4% to 3,532 homes, increasing across the board, other than West Coast.
  • Value of net orders, however, decreased 1.6% to $1.36 billion.
  • Number of homes delivered improved 5% from the year-ago level to 2,717 units.
  • Deliveries increased in three regions, except Southeast.
  • Average selling price went up 4% to $ 401,800.
  • At the end of the reported quarter, average community count was 215, down 10% year over year.

Backlog

  • $KBH's backlog totaled 5,787 homes (as of May 31, 2018), up 3.1% from a year ago.
  • Potential housing revenues from backlog increased 2.5% to $2.24 billion.
  • The Southwest and Southeast regions registered gains, backlog decreased in West Coast and Central.

Margins

  • Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) expanded 120 basis points (bps) year over year to 22.2%.
  • As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 10.4%, in line with the year-ago figure.

Financial Services:

Financial Services’ revenues grew 1% year over year to $2.8 million.

Cash and Inventory Position

  • KB Home had homebuilding cash and cash equivalents of $669.8 million as of May 31, 2018, lower than $720.6 million as of Nov 30, 2017.
  • Inventories were $3.5 billion, up from $3.3 billion as of Nov 30, 2017.
  • Net cash used in operating activities was $19.4 million in the first six months of fiscal 2018 compared with $64.6 million a year ago.
  • The ratio of debt to capital was 55.1% as of May 31, 2018, while that of net debt to capital was 46.8%, which is within the company’s 2019 targeted range under its Returns-Focused Growth Plan.

Outlook

Third-Quarter Guidance

  • KB Home expects housing revenues between $1.23 billion and $1.29 billion and ASP of around $410,000-$415,000.
  • SG&A ratio will likely be in the range of 9.3-9.8%.
  • Average community count is anticipated to be down 10% from the third quarter of 2017.
  • KBH expects third-quarter housing gross profit margin (assuming no inventory-related charges) in the range of 17.6-18% (16.8-17.2% expected earlier).
  • Homebuilding operating margin (excluding impact of any inventory-related charges) is expected to be within 7.8-8.4%.

Fiscal 2018 Guidance

  • KB Home has narrowed housing revenue guided range to $4.6-$4.8 billion from prior expectation of $4.55-$4.85 billion.
  • KBH reiterated ASP projection in the range of $400,000-$410,000.
  • Average community count is now anticipated to be slightly up (versus flat to down 5% expected earlier) year over year.
  • $KBH rose housing gross profit margin (excluding inventory-related charges) expectation to the range of 17.6-18% (earlier it was 17.4-17.9%), reflecting an improvement of 72-110 bps. SG&A ratio will now likely be around 9.6-9.9% (versus 9.7-10% expected earlier).
  • Homebuilding operating margin is now expected in the range of 7.7-8.2% (from prior expectation of 7.4-8%).

Source: KB Homes, Zachs

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