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KB Home’s (KBH - Analyst Report) second quarter fiscal 2013 adjusted earnings (excluding water intrusion-related charge) of 16 cents,  is a huge improvement over the year-ago adjusted loss of 31 cents per share. The company's reported loss of 4 cents per share was narrower than the Zacks Consensus Estimate of a loss of 5 cents per share.

Results improved year over year on the back of higher homebuilding revenues, improved housing gross margins and reduced selling, general and administrative (SG&A) expense ratio.  

In addition to the strengthening housing market, KB Home’s strategic growth initiatives helped drive revenues and profitability in the quarter. The company gained from repositioning of land investments to highly sought-after land constrained.  

Total revenue increased 73% from the year-ago quarter to $524.4 million in the second quarter of 2013, driven by higher housing revenues due to improved market conditions. Total revenue crushed  Zacks Consensus Estimate of $426 million by 23.1%.  

Quarter Details  

In the second quarter of 2013, housing revenues increased 73.6% year over year to $521.8 million, driven by increased pricing, double-digit increase in number of homes delivered and robust net order growth. The number of homes delivered increased 39% from the year-ago quarter to 1,797 homes.

Despite a 3% dip in community count, net orders increased 6% in the quarter to 2,162 homes. The increase in net order value was driven by an 8% rise in the Central region and 31% rise in the Southeast region, partially dragged by weak net orders in the West and Southwest.

The value of net orders grew 27% to $639.6 million, driven by a solid increase in net order value in all the regions. Increase in net order value varied across regions, from a 10% increase in the Southwest region to a 46% increase in the Southeast.

Average selling price rose 25% year over year to $290,400, driven by gradually rising home prices and the company’s shift in focus toward homebuyers in highly-desirable, land-constrained submarkets. The Southwest region recorded the maximum price hike of 26%, followed by an increase of 16% in the Southeast region. Prices increased 15% each in both West Coast and Central regions. ASP improved sequentially for the twelfth consecutive quarter.  

The company’s backlog totaled 3,128 homes as of May 31, 2013, up 6% from 2,962 homes as of May 31, 2012. Potential housing revenues from backlog rose 19% to $826.6 million from $693.4 million in the year-ago quarter. As a percentage of gross orders, the company’s cancellation rate was 27%, up from 26% in the second quarter of 2012.

In the quarter, the company intensified its land acquisition and development activities, spending $230 million on such activities.

Adjusted homebuilding gross margin improved 610 basis points (bps) in the quarter to 18.2%, driven by price increases, favorable community mix and cost control initiatives. Moreover, gross margins improved 300 bps sequentially. Adjusted operating income is $24.6 million in the quarter.

The SG&A expense ratio improved 760 bps year over year to 13.4% in the quarter due to the company’s cost reduction initiatives and increase in revenues.

Financial Services Revenues and Income

Financial Services revenues (included in total revenue) were $2.6 million, up 13%. Pretax income of the business improved 33% to $2.0 million in the second quarter of 2013.

Outlook for Fiscal 2013

KB Home expects improved profitability for full year 2013 on the back of its strategic growth plans and strong housing fundamentals. Its strong land position, significant financial flexibility, increased community count, rising ASPs, higher deliveries and backlog position will help it to achieve its goals in 2013. Top line growth is also expected to accelerate.

KB Home intends to open more than 120 communities in 2013. The company expects its land investment to exceed $1.2 billion for fiscal 2013, up from the prior guidance of $1 billion, which will further boost top-line growth.  

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

Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI - Analyst Report), Lennar Corp. (LEN - Analyst Report) and Ryland Group Inc. (RYL - Snapshot Report), all carrying a Zacks Rank #1 (Strong Buy).

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