KB Home (KBH) Q1 Earnings Beat Expectations, Revenues Lag
KB Home KBH surpassed the Zacks Consensus Estimate in first-quarter fiscal 2018 on the top line but failed to meet the same on the bottom line. Following the release, shares of the company have gained 0.5% in the after-hours trading session on Mar 22.
Quarterly adjusted earnings of 40 cents per share outpaced the Zacks Consensus Estimate of 30 cents by 33.3% and increased a significant 116.7% from 15 cents in the year-ago period.
Total revenues of $871.6 million missed the consensus mark of $887 million. The top line, however, improved 6% year over year, driven by higher housing revenues.
Segment Details
Homebuilding Revenues: In the reported quarter, homebuilding revenues increased 6.5% from the prior-year quarter to $869.2 million, driven by an increase in the number of homes delivered and average selling price or ASP. While land generated $2.7 million in revenues (down 49.7% from the year-ago quarter), housing revenues came in at $866.5 million (up 6.9%).
Net orders increased 8% to 2,784 homes, increasing across the board. Value of net orders increased 8% to $1.17 billion.
Number of homes delivered remained unchanged from the year-ago level at 2,223 units. Deliveries increased in the Southwest, while it decreased in the other three regions. Average selling price went up 7% to $389,800.
At the end of the reported quarter, average community count was 222, down 7% year over year.
The company’s backlog totaled 4,972 homes (as of Feb 28, 2018), up 4% from a year ago. Potential housing revenues from backlog increased 10% to $1.97 billion. Although the Southwest and Southeast regions registered gains, backlog decreased in West Coast and Central.
KB Home Price, Consensus and EPS Surprise
KB Home Price, Consensus and EPS Surprise | KB Home Quote
Margins
Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) expanded 150 basis points (bps) year over year to 21.4%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 11%, reflecting a decrease of 50 bps from the year-ago quarter. This marks a record low first-quarter ratio in the company's history.
Financial Services: Financial Services’ revenues grew 2.9% year over year to $2.4 million.
Financial Position
KB Home had homebuilding cash and cash equivalents of $560.3 million as of Feb 28, 2018, lower than $720.6 million as of Nov 30, 2017. Inventories were $3.4 billion, up from $3.3 billion as of Nov 30, 2017.
Net cash used in operating activities was $141.7 million in fiscal first quarter, compared with $77 million a year ago.
The ratio of debt to capital was 56.0% as of Feb 28, 2018, while the that of net debt to capital was 49.3%, which is within the company’s 2019 target range under its Returns-Focused Growth Plan.
Second-Quarter Guidance
KB Home expects housing revenues between $990 million and $1.05 billion and ASP of around $400,000-$405,000. Meanwhile, SG&A ratio will likely be in the range of 10.6-11.1%. Average community count is anticipated to be down mid-single digits versus 238 communities in the second quarter of 2017.
The company expects second-quarter housing gross profit margin in the range of 16.8-17.2% (16-16.5% expected earlier).
Adjusted operating margin (excluding the impact of any inventory-related charges) is expected to be within 5.9-6.4%.
Fiscal 2018 Guidance
KB Home has narrowed its housing revenue guided range to $4.55-$4.85 billion from prior expectation of $4.5-$4.9 billion. The company has increased its ASP projection to the range of $400,000-$410,000, from earlier expectation of $395,000-$405,000. Average community count is now anticipated between flat and 5% down year over year.
The company boosted its housing gross profit margin (excluding inventory-related charges) expectation to the range of 17.4-17.9% (earlier it was 17.2-17.7%), reflecting an improvement of 50-100 bps. SG&A ratio will likely be around 9.7-10%, approximately flat from fiscal 2017 level.
Adjusted operating margin is now expected to be in the range of 7.4-8% (from prior 7.2-7.7%).
Zacks Rank & Key Picks
KB Home carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the construction sector are Meritage Homes Corporation MTH, Lyon William Homes WLH and Beazer Homes USA, Inc. BZH, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meritage Homes and Lyon William are expected to witness 30.4% and 38% increase in 2018 earnings.
Beazer Homes is expected to witness 112.5% growth in earnings this quarter.
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