KB Home’s (KBH - Free Report) shares have gained 3.8% in yesterday’s after-hour trading, after the homebuilder beat earnings expectation in the fourth quarter of fiscal 2018, despite reporting lower revenues.
Earnings & Revenue Discussion
Quarterly earnings of 96 cents per share outpaced the Zacks Consensus Estimate of 93 cents by 3.2% and also increased 14% from 84 cents a year ago.
Total revenues of $1.348 billion, however, missed the consensus mark of $1.350 billion. The top line also decreased 4% year over year, mainly due to lower average selling price (“ASP”) of homes delivered.
Segment Details
Homebuilding Revenues: In the reported quarter, the segment's revenues decreased 3.9% to $1.344 billion from the prior-year quarter, thanks to lower ASP of homes delivered. While land generated $4.7 million in revenues (down 40.7% from the year-ago quarter), housing revenues totaled $1.339 billion (down 3.7%).
Net orders decreased 12.3% to 2,013 homes, declining across the regions served by the company (barring Southeast region). Value of net orders, however, decreased 21.1% to $738.3 million.
Number of homes delivered improved only 1.5% from the year-ago level to 3,389 units. Deliveries increased in two regions (Southwest and Southeast). Average selling price fell 5% to $395,200, mainly due to a shift in geographic mix of homes delivered.
At the end of the reported quarter, average community count was 232, up 2% year over year.
The company’s backlog totaled 4,108 homes (as of Nov 30, 2018), down 6.9% from a year ago. Potential housing revenues from backlog decreased 14% to $1.43 billion.
Margins
Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) contracted 70 basis points (bps) year over year to 22.8%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 9%, up 30 bps from the year-ago figure. This upside was mainly due to higher marketing expenses to support new community openings during the quarter and in 2019.
Homebuilding operating margin decreased 30 bps on a year-over-year basis to 9.1%. After adjusting for inventory-related charges, operating margin came in at 9.7%, down 20 bps.
Financial Services revenues grew 14.8% year over year to $4.6 million.
Financial Position
KB Home had homebuilding cash and cash equivalents of $574.4 million as of Nov 30, 2018, lower than $720.6 million on Nov 30, 2017. Inventories were $3.6 billion, up from $3.3 billion as of Nov 30, 2017. KB Home had total liquidity of $1.05 billion at the end of the quarter.
In 2018, KB Home generated $222 million of net operating cash flow after investing nearly $1.9 billion in land acquisitions and development.
Its debt-to-capital ratio was 49.7% (up 500 bps) as of Nov 30, 2018. Net debt to capital was 41.6% (reflecting a 380-bps improvement) in 2018, marking the lowest year-end net leverage ratio since 2007.
Fiscal 2018 Highlights
KB Home’s earnings came in at $1.71, reflecting a decrease from $1.85 per share earned in the year-ago period. The company’s total revenues were $4.55 billion, up 4% year over year. Deliveries increased 4% and ASP was slightly increased to $399,200 during the fiscal year.
The company’s adjusted operating margin (excluding inventory-related charges) expanded 120 bps year over year to 8.3%. SG&A expenses, as a percentage of housing revenues, were flat year over year at 9.8%.
First Quarter of Fiscal 2019 Guidance
KB Home expects housing revenues between $800 million and $860 million, and ASP of around $375,000-$385,000. Meanwhile, SG&A ratio is projected in the range of 12.7-13.5%. Average community count is expected to grow within 6-10%.
The company expects housing gross margin (assuming no inventory-related charges) in the range of 16.6-17.2%.
Homebuilding operating margin (excluding impact of any inventory-related charges) is expected within 3.4-4.4%.
Zacks Rank & Key Picks
Currently, KB Home carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Construction sector are KBR, Inc. (KBR - Free Report) , Taylor Morrison Home Corporation (TMHC - Free Report) and Altair Engineering Inc. (ALTR - Free Report) . While KBR sports a Zacks Rank #1 (Strong Buy), Taylor Morrison and Altair Engineering both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KBR surpassed earnings estimates in three of the trailing four quarters, resulting in average positive surprise of 12.6%.
Taylor Morrison and Altair Engineering are expected to witness 14.8% and 70.8% EPS growth in 2019, respectively.
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KB Home’s (KBH - Free Report) shares have gained 3.8% in yesterday’s after-hour trading, after the homebuilder beat earnings expectation in the fourth quarter of fiscal 2018, despite reporting lower revenues.
Earnings & Revenue Discussion
Quarterly earnings of 96 cents per share outpaced the Zacks Consensus Estimate of 93 cents by 3.2% and also increased 14% from 84 cents a year ago.
Total revenues of $1.348 billion, however, missed the consensus mark of $1.350 billion. The top line also decreased 4% year over year, mainly due to lower average selling price (“ASP”) of homes delivered.
Segment Details
Homebuilding Revenues: In the reported quarter, the segment's revenues decreased 3.9% to $1.344 billion from the prior-year quarter, thanks to lower ASP of homes delivered. While land generated $4.7 million in revenues (down 40.7% from the year-ago quarter), housing revenues totaled $1.339 billion (down 3.7%).
Net orders decreased 12.3% to 2,013 homes, declining across the regions served by the company (barring Southeast region). Value of net orders, however, decreased 21.1% to $738.3 million.
Number of homes delivered improved only 1.5% from the year-ago level to 3,389 units. Deliveries increased in two regions (Southwest and Southeast). Average selling price fell 5% to $395,200, mainly due to a shift in geographic mix of homes delivered.
At the end of the reported quarter, average community count was 232, up 2% year over year.
The company’s backlog totaled 4,108 homes (as of Nov 30, 2018), down 6.9% from a year ago. Potential housing revenues from backlog decreased 14% to $1.43 billion.
Margins
Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) contracted 70 basis points (bps) year over year to 22.8%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 9%, up 30 bps from the year-ago figure. This upside was mainly due to higher marketing expenses to support new community openings during the quarter and in 2019.
Homebuilding operating margin decreased 30 bps on a year-over-year basis to 9.1%. After adjusting for inventory-related charges, operating margin came in at 9.7%, down 20 bps.
Financial Services revenues grew 14.8% year over year to $4.6 million.
Financial Position
KB Home had homebuilding cash and cash equivalents of $574.4 million as of Nov 30, 2018, lower than $720.6 million on Nov 30, 2017. Inventories were $3.6 billion, up from $3.3 billion as of Nov 30, 2017. KB Home had total liquidity of $1.05 billion at the end of the quarter.
In 2018, KB Home generated $222 million of net operating cash flow after investing nearly $1.9 billion in land acquisitions and development.
Its debt-to-capital ratio was 49.7% (up 500 bps) as of Nov 30, 2018. Net debt to capital was 41.6% (reflecting a 380-bps improvement) in 2018, marking the lowest year-end net leverage ratio since 2007.
Fiscal 2018 Highlights
KB Home’s earnings came in at $1.71, reflecting a decrease from $1.85 per share earned in the year-ago period. The company’s total revenues were $4.55 billion, up 4% year over year. Deliveries increased 4% and ASP was slightly increased to $399,200 during the fiscal year.
The company’s adjusted operating margin (excluding inventory-related charges) expanded 120 bps year over year to 8.3%. SG&A expenses, as a percentage of housing revenues, were flat year over year at 9.8%.
First Quarter of Fiscal 2019 Guidance
KB Home expects housing revenues between $800 million and $860 million, and ASP of around $375,000-$385,000. Meanwhile, SG&A ratio is projected in the range of 12.7-13.5%. Average community count is expected to grow within 6-10%.
The company expects housing gross margin (assuming no inventory-related charges) in the range of 16.6-17.2%.
Homebuilding operating margin (excluding impact of any inventory-related charges) is expected within 3.4-4.4%.
Zacks Rank & Key Picks
Currently, KB Home carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Construction sector are KBR, Inc. (KBR - Free Report) , Taylor Morrison Home Corporation (TMHC - Free Report) and Altair Engineering Inc. (ALTR - Free Report) . While KBR sports a Zacks Rank #1 (Strong Buy), Taylor Morrison and Altair Engineering both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
KBR surpassed earnings estimates in three of the trailing four quarters, resulting in average positive surprise of 12.6%.
Taylor Morrison and Altair Engineering are expected to witness 14.8% and 70.8% EPS growth in 2019, respectively.
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Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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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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