KB Home’s (KBH - Free Report) shares dropped 4.3% in the after-market trading session on Jun 23, following second-quarter fiscal 2021 results. Although earnings surpassed the Zacks Consensus Estimate, revenues missed the same. Nonetheless, earnings and revenues grew significantly from a year ago buoyed by strong housing market demand.
Jeffrey Mezger, Chairman, President and Chief Executive Officer said, “With a backlog value above $4 billion, we are poised to deliver a substantial increase in revenue this year, at solid margins that we anticipate will contribute to a return on equity of roughly 20%.”
Earnings & Revenue Discussion
KB Home reported quarterly earnings of $1.50 per share, which surpassed the consensus estimate of $1.29 by 16.3%. Also, the metric grew a significant 173% from the year-ago figure of 55 cents per share.
Total revenues of $1,440.9 million missed the consensus mark of $1,475 million by 2.3%. Nonetheless, revenues grew 57.7% on a year-over-year basis.
Segment Details
Homebuilding: For the quarter under review, the segment's revenues of $1,436 million increased 57.8% from the prior-year period.
The number of homes delivered grew 40% from the year-ago level to 3,504 units. Further, average selling price or ASP increased 13% from a year ago to $409,800.
Net orders increased 145% from the prior-year quarter to 4,300 homes, marking the highest second-quarter level in 14 years. Moreover, value of net orders rose 196% from the year-ago quarter to $2.04 billion.
For the reported quarter, average community count was down 17% from a year ago to 205. Quarter-end community count was 200, down 18% from the prior year. Net orders per community averaged 7 per month compared with 2.4 a year ago.
Cancellation rate, as a percentage of gross orders, improved to 9% from 43% reported a year ago. Its quarter-end backlog totaled 10,034 homes (as of May 31, 2021), up 98% from a year ago. Further, potential housing revenues from backlog grew 126% from the prior-year period to $4.29 billion.
Margins
Within homebuilding, housing gross margin (excluding inventory-related charges) improved 280 basis points (bps) year over year to 21.5%. The increase was attributed to a favorable pricing environment due to robust housing market demand, increased operating leverage on higher revenues and lower amortization of previously capitalized interest.
As a percentage of housing revenues, selling, general and administrative expenses improved 250 bps from the year-ago figure to 10.1% due to reduced overhead costs, strong housing demand and increased operating leverage on the back of higher revenues.
Homebuilding operating margin (excluding inventory-related charges) increased 450 bps to 11.4%.
Financial Services revenues rose 31.6% year over year to $4,857 million. Pretax income of $10.6 million was up 40% from a year ago, mainly reflecting higher income from its mortgage banking joint venture, KBHS Home Loans, LLC.
Financial Position
KB Home had cash and cash equivalents of $608.1 million as of May 31, 2021, down from $681.2 million on Nov 30, 2020. The company had total liquidity of $1.4 billion, including $787.6 million of available capacity under the unsecured revolving credit facility.
Inventories increased 10% from Nov 30, 2020 to $4.27 billion at the end of second-quarter fiscal 2021.
Its debt to capital was 37.7% at quarter-end, down from 39.6% as of Nov 30, 2020 (marking an improvement of 190 bps).
Guidance
For the fiscal third quarter, the company expects ASP of $420,000, indicating an increase from $384,700 reported a year ago. Housing revenues will likely be in the range of $1.5-$1.58 billion, indicating an increase from $995.1 million a year ago. Homebuilding operating income margin (excluding the impact of any inventory-related charges) is expected to improve to 11.7-12.1% for the quarter, suggesting an increase from 9.6% a year ago. Assuming no inventory-related charges, KB Home expects a sequential increase in fiscal third-quarter housing gross margin to 21.7% and further improvement in the fourth quarter. SG&A expense ratio will be approximately 9.8%.
For the full year, ASP will likely be in the range of $415,000-$425,000. Housing revenues are expected in the range of $5.9-$6.1 billion. Deliveries are likely to be between 14,000 and 14,500 homes. It expects operating margin (excluding any inventory-related charges) in the range of 11.5-12%. Housing gross margin will likely be within 21.5-22.0%, implying a 215-bps year-over-year increase at the mid-point. SG&A ratio will likely be in the range of 9.8-10.2%.
Zacks Rank
Currently, KB Home carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the Zacks Building Products - Home Builders industry include Lennar Corporation (LEN - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and M.D.C. Holdings, Inc. , each currently carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Toll Brothers, Lennar and M.D.C Holdings’ earnings for the current year are expected to rise 73.4%, 68.8% and 59.4%, respectively.
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KB Home’s (KBH - Free Report) shares dropped 4.3% in the after-market trading session on Jun 23, following second-quarter fiscal 2021 results. Although earnings surpassed the Zacks Consensus Estimate, revenues missed the same. Nonetheless, earnings and revenues grew significantly from a year ago buoyed by strong housing market demand.
Jeffrey Mezger, Chairman, President and Chief Executive Officer said, “With a backlog value above $4 billion, we are poised to deliver a substantial increase in revenue this year, at solid margins that we anticipate will contribute to a return on equity of roughly 20%.”
Earnings & Revenue Discussion
KB Home reported quarterly earnings of $1.50 per share, which surpassed the consensus estimate of $1.29 by 16.3%. Also, the metric grew a significant 173% from the year-ago figure of 55 cents per share.
Total revenues of $1,440.9 million missed the consensus mark of $1,475 million by 2.3%. Nonetheless, revenues grew 57.7% on a year-over-year basis.
Segment Details
Homebuilding: For the quarter under review, the segment's revenues of $1,436 million increased 57.8% from the prior-year period.
The number of homes delivered grew 40% from the year-ago level to 3,504 units. Further, average selling price or ASP increased 13% from a year ago to $409,800.
Net orders increased 145% from the prior-year quarter to 4,300 homes, marking the highest second-quarter level in 14 years. Moreover, value of net orders rose 196% from the year-ago quarter to $2.04 billion.
For the reported quarter, average community count was down 17% from a year ago to 205. Quarter-end community count was 200, down 18% from the prior year. Net orders per community averaged 7 per month compared with 2.4 a year ago.
Cancellation rate, as a percentage of gross orders, improved to 9% from 43% reported a year ago. Its quarter-end backlog totaled 10,034 homes (as of May 31, 2021), up 98% from a year ago. Further, potential housing revenues from backlog grew 126% from the prior-year period to $4.29 billion.
Margins
Within homebuilding, housing gross margin (excluding inventory-related charges) improved 280 basis points (bps) year over year to 21.5%. The increase was attributed to a favorable pricing environment due to robust housing market demand, increased operating leverage on higher revenues and lower amortization of previously capitalized interest.
As a percentage of housing revenues, selling, general and administrative expenses improved 250 bps from the year-ago figure to 10.1% due to reduced overhead costs, strong housing demand and increased operating leverage on the back of higher revenues.
Homebuilding operating margin (excluding inventory-related charges) increased 450 bps to 11.4%.
Financial Services revenues rose 31.6% year over year to $4,857 million. Pretax income of $10.6 million was up 40% from a year ago, mainly reflecting higher income from its mortgage banking joint venture, KBHS Home Loans, LLC.
Financial Position
KB Home had cash and cash equivalents of $608.1 million as of May 31, 2021, down from $681.2 million on Nov 30, 2020. The company had total liquidity of $1.4 billion, including $787.6 million of available capacity under the unsecured revolving credit facility.
Inventories increased 10% from Nov 30, 2020 to $4.27 billion at the end of second-quarter fiscal 2021.
Its debt to capital was 37.7% at quarter-end, down from 39.6% as of Nov 30, 2020 (marking an improvement of 190 bps).
Guidance
For the fiscal third quarter, the company expects ASP of $420,000, indicating an increase from $384,700 reported a year ago. Housing revenues will likely be in the range of $1.5-$1.58 billion, indicating an increase from $995.1 million a year ago. Homebuilding operating income margin (excluding the impact of any inventory-related charges) is expected to improve to 11.7-12.1% for the quarter, suggesting an increase from 9.6% a year ago. Assuming no inventory-related charges, KB Home expects a sequential increase in fiscal third-quarter housing gross margin to 21.7% and further improvement in the fourth quarter. SG&A expense ratio will be approximately 9.8%.
For the full year, ASP will likely be in the range of $415,000-$425,000. Housing revenues are expected in the range of $5.9-$6.1 billion. Deliveries are likely to be between 14,000 and 14,500 homes. It expects operating margin (excluding any inventory-related charges) in the range of 11.5-12%. Housing gross margin will likely be within 21.5-22.0%, implying a 215-bps year-over-year increase at the mid-point. SG&A ratio will likely be in the range of 9.8-10.2%.
Zacks Rank
Currently, KB Home carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the Zacks Building Products - Home Builders industry include Lennar Corporation (LEN - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and M.D.C. Holdings, Inc. , each currently carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Toll Brothers, Lennar and M.D.C Holdings’ earnings for the current year are expected to rise 73.4%, 68.8% and 59.4%, respectively.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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