KB HomeKBH reported stellar second-quarter fiscal 2017 results on solid housing fundamental. The company's share price increased 1.01% in the after-hour trading session yesterday, following the earnings release.
The company's quarterly earnings of 33 cents per share outpaced the Zacks Consensus Estimate of 26 cents by 26.9% and increased by a significant 94% from the year-ago profit level of 17 cents.
Total revenue of $1 billion in the quarter beat the Zacks Consensus Estimate of $922 million by 8.8%. The top line increased 24% year over year, driven by higher housing revenues.
Homebuilding Revenue: In the reported quarter, homebuilding revenues grew 23.7% year over year to $1,000.1 million, driven by a double-digit increase in the number of homes delivered. Land generated $4.4 million in revenues, reflecting an increase of 318.6%. Housing revenues of $995.7 million improved 23.3% from the year-ago quarter.
Net orders rose 5.1% to 3,416 homes, driven by higher demand in the housing markets served by KB Home across the board, barring Southeast region. Value of net orders increased 15% to $1,383.5 million.
Number of homes delivered jumped 11% to 2,580 homes, buoyed by double-digit increases in the company's West Coast, Southwest and Central regions. The company's Southeast region faced 9.1% decline in deliveries. Average selling price went up 11% to $385,900.
At the end of the reported quarter, average community count was 238, reflecting a decline of 2% year over year. The decrease was due to a 26% decline in its Southeast region.
The company's backlog totaled 5,612 homes (as of May 31, 2017), increasing 8% year over year. Potential housing revenues from backlog increased 19% to $2.18 billion, with West Coast and Southwest regions registering double-digit gains.
Adjusted housing gross profit margin (excluding the amortization of previously capitalized interest and inventory-related charges) expanded 30 basis points (bps) year over year to 21%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 10.4%, down 120 bps year over year. This marks the lowest second-quarter ratio in the company's history.
Adjusted homebuilding operating margin (after excluding inventory-related charges) increased 90 bps year over year to 5.6%.
Financial Services: In the quarter, Financial Services' revenues grew 5.2% year over year to $2.7 million.
KB Home had homebuilding cash and cash equivalents of $348.6 million as of May 31, 2017, lower than $592.1 million as of Nov 30, 2016.
Net debt was $2.16 billion as of May 31, 2017, compared with $2.05 billion as of Nov 30, 2016. This reflects a net debt-to-capitalization ratio of 54.9% in the quarter, slightly higher than 54.3% at the end of 2016.
KB Home expects homebuilding revenues between $1.08 billion and $1.15 billion, ASP of around $405,000-$410,000 (reflecting 11% to 12% growth), and SG&A ratio likely to be about 10.1%.
Homebuilding gross margin is likely to be between 16.4% and 16.7%. It also expects fourth quarter gross margins to be in the range of 17.6-18%, up 50 bps from the midpoint from the previous guided range.
It anticipates third-quarter average community count to be flat year over year.
Tax rate for the remaining two quarters of 2017 is expected to be approximately 39%.
Fiscal 2017 Guidance
KB Home increased its homebuilding revenues to the range of $4.2???$4.4 billion, up from the prior guidance of $4 billion and $4.3 billion. The new range reflects a 20% expected growth from the 2016 level. ASP is now expected to be around $390,000-$400,000, up from $385,000-$395,000, reflecting an increase of 7-10%.
The company expects housing gross margin in the range of 16.3-16.7% compared with the prior expectation of 16-16.5%.
SG&A, as a percentage of sales, is expected to be approximately 10% to 10.3% against 10% to 10.4% expected earlier. Homebuilding operating margin is projected in the 6- 6.6% band (5.8% to 6.4% earlier). The company expects community count to remain flat in the year.
The company remains on track to attain net to debt capital ratio in the range of its stated goal of 40% to 50% in the near to mid-term.
KB Home currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
KB Home Price, Consensus and EPS Surprise
Lennar Corporation's LENsecond-quarter fiscal 2017 adjusted earnings of 91 cents per share surpassed the Zacks Consensus Estimate of 78 cents by 16.7%. Earnings decreased 4.2% from the year-ago level of 95 cents.
Upcoming Peer Releases
D.R. Horton, Inc. DHI is slated to release its third-quarter fiscal 2017 results on Jul 26, 2017 before the market opens. The Zacks Consensus Estimate for the company's quarterly earnings is currently pegged at 75 cents, which is expected to grow 13.8% year over year.
PulteGroup, Inc. PHM is scheduled to release its second-quarter 2017 results on Jul 25, 2017. The Zacks Consensus Estimate for the company's quarterly earnings is currently pegged at 45 cents, which is expected to grow 21.2% year over year.
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