It has been about a month since the last earnings report for KB Home (KBH Quick QuoteKBH - Free Report) . Shares have lost about 21.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is KB Home due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

KB Home (KBH Quick QuoteKBH - Free Report) Q4 Earnings Beat, Revenues Lag

KB Home’s fourth-quarter fiscal 2021 (ended Nov 30, 2021) earnings surpassed the Zacks Consensus Estimate but revenues missed the same owing to supply chain disruptions and labor shortages. Nonetheless, both the top and bottom lines grew impressively on a year-over-year basis, buoyed by strong housing market demand.

Jeffrey Mezger, chairman, president and chief executive officer, said, “This year marks our 65th anniversary, and we begin 2022 well-positioned to continue to deliver returns-focused growth. Our nearly $5 billion in backlog value and projected substantial year-over-year increase in community count support significant revenue growth this year. Combined with a meaningful acceleration of our operating margin that we anticipate this year, we expect to produce a return on equity above 26%.”

Earnings & Revenue Discussion

KBH’s fiscal fourth-quarter adjusted earnings came in at $1.91 per share, which surpassed the consensus estimate of $1.77 by 7.9%. Also, the metric grew 71% from the year-ago figure of $1.12 per share. The upside was mainly backed by solid revenues and margin growth.

Total revenues of $1.68 billion missed the consensus mark of $1.72 billion by 2.4% but increased 40% on a year-over-year basis.

Segment Details

Homebuilding: For the quarter under review, the segment's revenues of $1.67 billion increased 40.3% from the prior-year period.

The number of homes delivered grew 28% from the year-ago level to 3,679 units. Further, the average selling price or ASP increased 9% from a year ago to $451,100.

Net orders dropped 10.4% from the prior-year quarter to 3,529 homes. Nonetheless, the value of net orders rose 12% from the year-ago quarter to $1.77 billion. At quarter-end, the average community count fell 8% from a year ago to 217.

Cancellation rate, as a percentage of gross orders, remained essentially flat at 13% from a year ago. Quarter-end backlog totaled 10,544 homes (as of Nov 30, 2021), up 35% from a year ago. Further, potential housing revenues from backlog grew 67% from the prior-year period to $4.95 billion. This marks the highest fourth-quarter level since 2005. It is to be noted that backlog in all the four regions served increased year over year.

Margins

Within homebuilding, housing gross margin (excluding inventory-related charges) improved 140 bps year over year to 22.4%. The increase was attributed to a favorable pricing environment due to robust housing demand and limited supply of available homes for sale along with lower amortization of previously capitalized interest. This was partially offset by higher construction costs (especially lumber).

Selling, general and administrative expenses — as a percentage of housing revenues — reduced 50 bps from the year-ago figure to 9.8%, thanks to higher operating leverage, given strong housing demand. Yet, higher costs associated with performance-based employee compensation plans and expenses to support the current and expected growth partly impacted the same.

Homebuilding operating margin (excluding inventory-related charges) increased 220 bps to 12.9%.

Financial Services revenues rose 34.7% year over year to $5,206 million. Pretax income of $9.9 million rose 5% from a year ago. This reflects higher income from title services and insurance commissions, partly offset by a decrease in the equity in income of its mortgage banking joint venture, KBHS Home Loans, LLC.

Financial Position

KB Home had cash and cash equivalents of $290.8 million as of Nov 30, 2021, down from $681.2 million in the corresponding period of 2020. The company had total liquidity of $1.08 billion, including $791.4 million of available capacity under the unsecured revolving credit facility.

Inventories increased 23% from Nov 30, 2020 to $4.80 billion at the end of fiscal 2021.

During fiscal 2021, KBH repaid $450.0 million of 7.00% senior notes due for the period and issued $390.0 million of 4.00% senior notes due 2031. As of fiscal 2021-end, the debt to capital ratio improved 380 bps to 35.8%.

Fiscal 2021 Highlights

Earnings came in at $6.01 per share for the full year, reflecting an increase of 92% from a year ago. Total revenues of $5.72 billion jumped 37% from the fiscal 2020 level. Homes delivered rose 26% year over year to 13,472 and ASP increased 9% to $422,700.

Fiscal 2022 Guidance

For fiscal 2022, the company expects housing revenues in the range of $7.20-$7.60 billion. ASP is expected within $480,000-$490,000. Homebuilding operating margin (assuming no inventory-related charges) is expected to improve 15.7-16.5% for the fiscal year. Assuming no inventory-related charges, KB Home expects fiscal 2022 housing gross margin in the range of 25.4-26.2%. SG&A expense, as a percentage of housing revenues, is likely to be in the range of 9.4-9.9%. The company expects year-end community count to improve 20-25% from fiscal 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, KB Home has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

KB Home has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.