KB Home (KBH - Free Report) reported impressive second quarter fiscal 2016 results. Quarterly adjusted earnings of 17 cents per share surpassed the Zacks Consensus Estimate of 16 cents by 6.3%. The bottom line also surged 70% from adjusted earnings of 10 cents reported in the prior-year quarter.
Total revenue of $811.1 million in the second quarter of 2016 beat the Zacks Consensus Estimate of $753 million by 7.7%. Revenues soared 30% year over year driven by a higher-than-expected increase in housing revenues.
Quarter in Details
In the reported quarter, homebuilding revenues soared 30.2% year over year to $808.5 million driven by double-digit increase in the number of homes delivered.
Housing revenues of $807.4 million surged 33% from the year-ago period. Housing revenues significantly exceeded the company’s expected range of $710 million and $770 million.
Number of homes delivered jumped 30% to 2,329 homes, driven by double-digit increase across all the four segments. ASP of homes delivered rose 2% to $346,700. ASP of homes in the second quarter of 2016 missed management’s expectation of $360,000, owing to unfavorable shift in homes delivered to the West Coast. There were a greater proportion of lower priced homes sold in this coastal market.
Despite lower community count, net orders rose 8% to 3,249 homes driven by demand growth in the housing markets served by KB Home. Value of net orders climbed 14% to $1.20 billion. West Coast delivered strongest order numbers and values in the quarter. At the end of the quarter, average community count was 242, down 2% year over year, as the company opened lower number of communities in the quarter.
At the end of second quarter 2016, the company’s backlog totaled 5,205 homes, up 10% year over year. Potential housing revenues from backlog increased 14% to $1.83 billion driven by higher backlog.
Adjusted homebuilding gross margin expanded 40 basis points (bps) year over year to 20.7%. The metric was adjusted for amortization expenses and inventory related charges. In line with management’s expectations, homebuilding gross margin remained flat sequentially.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) improved 140 bps to 11.6%, owing to increased housing revenue and cost control efforts.
Adjusted homebuilding operating margin (after excluding inventory related charges) increased 170 bps year over year to 4.7%, driven by an increase in gross margin and SG&A ratio.
Third Quarter 2016 Outlook
KB Home expects housing revenues to range between $900 million and $960 million in the quarter, driven by robust order growth. The company expects ASP in the range of $375,000 to $380,000 during the third quarter of fiscal 2016. Gross margin is expected to improve sequentially to 16.5%.
Fiscal 2016 Outlook
KB Home raised its housing revenue expectation to $3.45 billion to $3.70 billion from the prior expected range of $3.35 billion to $3.65 billion, which indicates a year-over-year increase from2015 levels. ASP is expected to increase 4%-6%, lower than the prior expectation of 6–8%. Assuming no further inventory impairment or land option contract abandonment charges, full-year gross margin is expected to be in the range of 16.7% to 16.9%, lower than the prior expectation of over 17%. Adjusted operating margin is expected to range between 5.8% and 6.0%.
KB Home currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the construction sector include TopBuild Corp. (BLD - Free Report) , Masco Corporation (MAS - Free Report) and GCP Applied Technologies Inc. . While TopBuild sports a Zacks Rank #1 (Strong Buy), Masco and GCP have a Zacks Rank #2 (Buy).
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KB Home (KBH - Free Report) reported impressive second quarter fiscal 2016 results. Quarterly adjusted earnings of 17 cents per share surpassed the Zacks Consensus Estimate of 16 cents by 6.3%. The bottom line also surged 70% from adjusted earnings of 10 cents reported in the prior-year quarter.
Total revenue of $811.1 million in the second quarter of 2016 beat the Zacks Consensus Estimate of $753 million by 7.7%. Revenues soared 30% year over year driven by a higher-than-expected increase in housing revenues.
Quarter in Details
In the reported quarter, homebuilding revenues soared 30.2% year over year to $808.5 million driven by double-digit increase in the number of homes delivered.
Housing revenues of $807.4 million surged 33% from the year-ago period. Housing revenues significantly exceeded the company’s expected range of $710 million and $770 million.
Number of homes delivered jumped 30% to 2,329 homes, driven by double-digit increase across all the four segments. ASP of homes delivered rose 2% to $346,700. ASP of homes in the second quarter of 2016 missed management’s expectation of $360,000, owing to unfavorable shift in homes delivered to the West Coast. There were a greater proportion of lower priced homes sold in this coastal market.
Despite lower community count, net orders rose 8% to 3,249 homes driven by demand growth in the housing markets served by KB Home. Value of net orders climbed 14% to $1.20 billion. West Coast delivered strongest order numbers and values in the quarter. At the end of the quarter, average community count was 242, down 2% year over year, as the company opened lower number of communities in the quarter.
At the end of second quarter 2016, the company’s backlog totaled 5,205 homes, up 10% year over year. Potential housing revenues from backlog increased 14% to $1.83 billion driven by higher backlog.
Adjusted homebuilding gross margin expanded 40 basis points (bps) year over year to 20.7%. The metric was adjusted for amortization expenses and inventory related charges. In line with management’s expectations, homebuilding gross margin remained flat sequentially.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) improved 140 bps to 11.6%, owing to increased housing revenue and cost control efforts.
Adjusted homebuilding operating margin (after excluding inventory related charges) increased 170 bps year over year to 4.7%, driven by an increase in gross margin and SG&A ratio.
Third Quarter 2016 Outlook
KB Home expects housing revenues to range between $900 million and $960 million in the quarter, driven by robust order growth. The company expects ASP in the range of $375,000 to $380,000 during the third quarter of fiscal 2016. Gross margin is expected to improve sequentially to 16.5%.
Fiscal 2016 Outlook
KB Home raised its housing revenue expectation to $3.45 billion to $3.70 billion from the prior expected range of $3.35 billion to $3.65 billion, which indicates a year-over-year increase from2015 levels. ASP is expected to increase 4%-6%, lower than the prior expectation of 6–8%. Assuming no further inventory impairment or land option contract abandonment charges, full-year gross margin is expected to be in the range of 16.7% to 16.9%, lower than the prior expectation of over 17%. Adjusted operating margin is expected to range between 5.8% and 6.0%.
KB Home currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the construction sector include TopBuild Corp. (BLD - Free Report) , Masco Corporation (MAS - Free Report) and GCP Applied Technologies Inc. . While TopBuild sports a Zacks Rank #1 (Strong Buy), Masco and GCP have a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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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