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KB Home (KBH) Tops Q3 Earnings, Revenues Miss Estimates

Zacks

KB Home KBH reported impressive third-quarter fiscal 2016 adjusted earnings of 42 cents per share that surpassed the Zacks Consensus Estimate of 39 cents by 7.7%.

However, total revenue of $913.3 million in the third quarter missed the Zacks Consensus Estimate of $954.1 million by 4.3%. That said, revenues registered an 8.3% year-over-year increase, driven by higher housing revenues.

Segment Details

Homebuilding Revenue: In the reported quarter, homebuilding revenues grew 8.3% year over year to $910.1 million, driven by double-digit increase in the number of homes delivered. There were no revenues from land sales, compared to $41.6 million recorded a year ago. Hence, housing revenues of $910.1 million improved 12.2% from the year-ago period.

Net orders rose 16% to 2,508 homes, driven by demand growth in the housing markets served by KB Home. Value of net orders climbed 20.2% to $929.6 billion

Number of homes delivered jumped 11.2% to 2,487 homes, driven by double-digit increases in the company's West Coast and Central regions. Average selling price went up 2.4% to $365,900.

At the end of the reported quarter, average community count was 235, down 9% year over year.

The company’s backlog totaled 5,226 homes, up 12.6% year over year. Potential housing revenues from backlog increased 16.6% to $1.85 billion, driven by higher backlog.

Price, Consensus and EPS Surprise

Price, Consensus and EPS Surprise | Quote


Margins

Adjusted housing gross profit margin (excluding the amortization of previously capitalized interest and inventory-related charges), improved 10 basis points to 21.2%.

As a percentage of housing revenues, selling, general and administrative expenses (SG&A) improved 110 basis points to 10.8% owing to increased housing revenue.

Adjusted homebuilding operating margin (after excluding inventory-related charges) increased 120 basis points to 6%, driven by an increase in gross margin

Financial Services: In the quarter, Financial Services’ revenues grew 7.4% year over year to $3.2 million.

Financial Position

KB Home had homebuilding cash, cash equivalents and restricted cash of $335.3 million as of Aug 31, 2016, lower than $568.4 million as of Nov 30, 2015.

Homebuilding debt amounted to $2.34 billion as of Aug 31, 2016 compared with $2.06 billion as of Nov 30, 2015, reflecting a net debt-to-capitalization ratio of 58.2%, more than 54.9% as of 2015 end.

KB Home currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Better-ranked stocks in the construction sector include MDC Holdings Inc. MDC, TRI Pointe Group, Inc. TPH and PulteGroup, Inc. PHM. While MDC Holding and TRI Pointe Group sport a Zacks Rank #1 (Strong Buy), PulteGroup has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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