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KB Home (KBH) Shares Up on Q3 Earnings & Revenue Beat

Share price of KB HomeKBH rose more than 1% following strong third-quarter fiscal 2015 results.

The homebuilding company reported sequential improvement in margin and better-than-expected community count. It expects the remaining quarter of 2015 to perform well and expects strong momentum in 2016.

KB Home's adjusted earnings of 23 cents per share beat the Zacks Consensus Estimate of 22 cents by 4.6% but declined about 18% year over year from 28 cents, as the strong revenues was offset year over year decline in margins.

KB Home - Earnings Surprise | FindTheBest

Total revenue of $843.2 million in the third quarter surpassed the Zacks Consensus Estimate of $817 million by 3.2%. Revenues, however, increased 43% from the year-ago quarter on the back of higher housing and land sale revenues.

Quarter Details

In the reported quarter, homebuilding revenues increased 43.3% year over year to $840.2 million, driven by increase in average selling prices (ASP) and number of homes delivered.

Housing revenues of $798.6 million increased 36.2% from the year-ago period supported by higher number of homes delivered and rise in ASP. Housing revenue came within the expected range of $770 million to $810 million.

Net orders rose 19% to 2,167 homes driven by the company's higher average community count and demand growth in the housing markets served by KB Home. The value of net orders increased 23% to $773.3 billion backed by improvement in all the four geographical regions.

The number of homes delivered increased a solid 25% year over year to 2,236. The Southwest region witnessed the maximum increase, followed by West coast and Southeast.

ASP of homes delivered rose 9.2% year over year to $357,200 driven by positive shift in product mix and favorable macro-economic conditions in its served markets.

The company's backlog totaled 4,664 homes, as of Aug 31, 2015, up 36% year over year. Potential housing revenues from backlog jumped 44% to $1.59 billion driven by higher backlog and increased pricing. At the end of the quarter, average community count was 257, up 30% year over year which was higher than the mid-20% growth range as expected by the company.

Adjusted homebuilding gross margin decreased 160 basis points (bps) year over year to 21.1%. The decline in adjusted housing gross margin was due to higher construction, labor and material costs, start up field costs related to community openings, and competitive pricing pressure. However, sequentially, gross margin improved 80 bps.

As a percentage of housing revenues, selling, general and administrative expenses (SG&A) improved 50 bps to 11.9%. Sequentially, SG&A ratio improved 110 bps, exceeding the company's expectation of an improvement of over 100 bps.

KB Home currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the building sector may consider M/I Homes, Inc. MHO , DR Horton Inc. DHI and Lennar Corporation LEN . While M/I Homes and DR Horton sport a Zacks Rank #1 (Strong Buy), Lennar Corporation holds a Zacks Rank #2 (Buy).

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LENNAR CORP -A (LEN): Free Stock Analysis Report

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D R HORTON INC (DHI): Free Stock Analysis Report

M/I HOMES INC (MHO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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