KB Home (KBH) Beats Q1 Earnings Estimates, Housing Strong
KB Home KBH reported impressive first-quarter fiscal 2017 earnings of 15 cents per share, surpassing both the Zacks Consensus Estimate and the year-ago profit level of 14 cents by 7.1%.
Total revenue of $818.6 million in the quarter beat the Zacks Consensus Estimate of $802 million by 2.1%. The top line increased 20.7% year over year, driven by higher housing revenues.
Segment Details
Homebuilding Revenue: In the reported quarter, homebuilding revenues grew 20.8% year over year to $816.2 million, driven by a double-digit increase in the number of homes delivered. Land generated $5.3 million in revenues, up 71%. Housing revenues of $810.9 million improved 20.6% from the year-ago quarter.
Net orders rose 13.6% to 2,580 homes, driven by demand growth in the housing markets served by KB Home across the board except Southeast region. Value of net orders increased 31.6% to $1,085.4 million.
Number of homes delivered jumped 13.9% to 2,224 homes, buoyed by double-digit increases in the company's West Coast, Southwest and Central regions. Average selling price went up 5.9% to $364,600.
At the end of the reported quarter, average community count was 238, down 2.5% year over year.
The company’s backlog totaled 4,776 homes (as of Feb 28, 2017), up 11.5% year over year. Potential housing revenues from backlog increased 25.1% to $1.79 billion, with all the regions registering double-digit gains, barring Central and Southeast region. This marks the company’s highest backlog value since 2007.
Margins
Adjusted housing gross profit margin (excluding the amortization of previously capitalized interest and inventory-related charges) contracted 80 basis points (bps) to 19.9%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 11.5%, down 160 bps year over year. This marks the lowest first-quarter ratio in the company's history.
Adjusted homebuilding operating margin (after excluding inventory-related charges) increased 50 bps year over year to 3.6%.
Financial Services: In the quarter, Financial Services’ revenues dropped 10.6% year over year to $2.4 million.
Financial Position
KB Home had homebuilding cash, cash equivalents and restricted cash of $351.9 million as of Feb 28, 2017, lower than $592.1 million as of Nov 30, 2016.
Net debt was $2.15 billion as of Feb 28, 2017, compared with $2.05 billion as of Nov 30, 2016, reflecting a net debt-to-capitalization ratio of 55.3%, higher than 54.3% at the end of 2016.
KB Home currently carries a Zacks Rank #4 (Sell).
KB Home Price, Consensus and EPS Surprise
KB Home Price, Consensus and EPS Surprise | KB Home Quote
Stocks to Consider
Some better-placed stocks in the sector are NVR, Inc. NVR, PulteGroup, Inc. PHM and D.R. Horton, Inc. DHI.
For full-year 2017, NVR expects earnings to increase 23.6% while PulteGroup foresees an earnings growth rate of 31.5%. Both these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
D.R. Horton carries a Zacks Rank #2 (Buy) and is expected to witness 15.6% growth in fiscal 2017 earnings.
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