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KB Home (KBH) Stock Rises on Q1 Earnings & Revenues Beat
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KB Home (KBH - Free Report) reported better-than-expected results in first-quarter fiscal 2023 (ended Feb 28, 2023), defying the challenging housing market conditions. Its earnings and revenues beat the Zacks Consensus Estimate. Shares of this leading homebuilder gained 2.7% in the after-market trading session on Mar 22.
Pertaining to the quarterly results, Jeffrey Mezger, chairman, president and chief executive officer, stated, “Our revenues were at the high-end of our guidance range and we outperformed both our operating and gross margin expectations. In addition, we further expanded our book value per share, which grew to $44.80, up 27% from a year ago.”
Looking forward, Mezger added, “With our Board of Directors approving a $500 million share repurchase authorization, we have the flexibility to continue to return cash to stockholders, supporting our future earnings per share and return on equity."
Earnings & Revenue Discussion
KBH reported adjusted earnings of $1.45 per share, which topped the consensus estimate of $1.05 by 38.1%. In the year-ago period, the company reported earnings of $1.47 per share.
Total revenues of $1.384 billion also beat the consensus mark of $1.31 billion by 5.9% but dropped by a meager 1% on a year-over-year basis.
Segmental Details
Homebuilding: The segment's revenues of $1.379 billion decreased 1.1% from the prior-year quarter. The number of homes delivered of 2,788 units was down 3% from the year-ago period. The average selling price, or ASP, increased 2% from a year ago to $494,500.
Net orders declined 49% to 2,142 units from the prior year. The value of net orders also fell a whopping 53% from the year-ago quarter to $1 billion.
The cancelation rate, as a percentage of gross orders, was 36% compared with 11% a year ago. Quarter-end backlog totaled 7,016 homes, down 41% from the year-ago figure. Further, potential housing revenues from backlog declined 42% from the prior-year period to $3.31 billion.
Nevertheless, the average community count and the ending community count rose 18% and 23% from a year ago to 251 and 256, respectively.
Within homebuilding, the adjusted housing gross margin declined 60 basis points (bps) year over year to 21.8%. The decrease was due to more construction costs as well as the impacts of higher homebuyer concessions, given a softening housing market.
Selling, general and administrative expenses, as a percentage of housing revenues, improved 10 bps from the year-ago figure to 10.1%, reflecting lower expenses on approximately the same revenues. Homebuilding’s operating margin (excluding inventory-related charges) was down 50 bps to 11.7%.
Financial Services: The segment's revenues rose 24.6% year over year to $5.8 million. Pretax income of $6 million, down from $8.4 million reported a year ago.
Financial Position
KB Home had cash and cash equivalents of $260.1 million as of Feb 28, 2023, down from $328.5 million at fiscal 2022-end. The company had a total liquidity of $1.24 billion, including $983 million of available capacity under the unsecured revolving credit facility.
As of the fiscal first-quarter end, the debt-to-capital ratio was 32.6%, down from 33.4% a year ago.
In first-quarter fiscal 2023, it repurchased approximately 2 million shares of its outstanding common stock for $75 million.
2Q23 Guidance
The company expects housing revenues of $1.35-$1.5 billion, whereas it reported $1.71 billion in the year-ago quarter. ASP is likely to be $480,000, suggesting a decline from $494,300 reported a year ago. The homebuilding operating margin (assuming no inventory-related charges) is expected to be between 9.5% and 10.5%. This compares unfavorably with the year-ago figure of 15.4%.
Assuming no inventory-related charges, KB Home expects housing gross margin of 20-21%, whereas it reported 25.3% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10.3-10.8% (up from the year-ago figure of 9.8%). It projects an effective tax rate of 24%. The company expects average community count improvement of 15-20%.
FY23 Guidance
For the full year, it anticipates housing revenues of $5.20-$5.90 billion, indicating a decline from the fiscal 2022 reported level of $6.88 billion. ASP is likely to be $480,000-$490,000, whereas it reported $500,800 a year ago.
The homebuilding operating margin (assuming no inventory-related charges) is expected between 10% and 11%.
Assuming no inventory-related charges, KB Home expects housing gross margin of 20.5-21.5%, whereas it reported 24.8% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10-11%. It projects an effective tax rate of 24%. The company expects average community count improvement in the low-double-digit percentage range.
Return on equity is expected in the low-double digits.
Some better-ranked stocks in the same space are NVR, Inc. (NVR - Free Report) , Taylor Morrison Home Corporation (TMHC - Free Report) and Toll Brothers, Inc. (TOL - Free Report) .
A disciplined business model, and focus on maximizing liquidity and minimizing risks have helped NVR. The lot acquisition strategy helps the company avoid financial requirements and risks associated with direct land ownership and land development. This strategy allows it to gain efficiencies and a competitive edge over its peers.
NVR currently sports a Zacks Rank #1. NVR has seen an upward estimate revision for 2023 earnings over the past 30 days to $394.77 per share from $357.51. Shares of the company have gained 37.4% in the past six months.
Scottsdale, AZ-based homebuilder Taylor Morrison's ongoing operational enhancements, acquisition synergies and robust pricing power have more than offset the inflationary pressure and delays in some closings.
TMHC currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its 2023 earnings has been upwardly revised to $6.46 per share from $5.47 over the past 30 days. Shares of the company have gained 59.4% in the past six months.
Based in Horsham, PA, Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and a solid backlog.
TOL currently carries a Zacks Rank #2 (Buy). Earnings estimates for fiscal 2023 have increased to $8.66 per share from $7.87 over the past 30 days. Shares of the company have gained 40.6% in the past six months.
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KB Home (KBH) Stock Rises on Q1 Earnings & Revenues Beat
KB Home (KBH - Free Report) reported better-than-expected results in first-quarter fiscal 2023 (ended Feb 28, 2023), defying the challenging housing market conditions. Its earnings and revenues beat the Zacks Consensus Estimate. Shares of this leading homebuilder gained 2.7% in the after-market trading session on Mar 22.
Pertaining to the quarterly results, Jeffrey Mezger, chairman, president and chief executive officer, stated, “Our revenues were at the high-end of our guidance range and we outperformed both our operating and gross margin expectations. In addition, we further expanded our book value per share, which grew to $44.80, up 27% from a year ago.”
Looking forward, Mezger added, “With our Board of Directors approving a $500 million share repurchase authorization, we have the flexibility to continue to return cash to stockholders, supporting our future earnings per share and return on equity."
Earnings & Revenue Discussion
KBH reported adjusted earnings of $1.45 per share, which topped the consensus estimate of $1.05 by 38.1%. In the year-ago period, the company reported earnings of $1.47 per share.
KB Home Price, Consensus and EPS Surprise
KB Home price-consensus-eps-surprise-chart | KB Home Quote
Total revenues of $1.384 billion also beat the consensus mark of $1.31 billion by 5.9% but dropped by a meager 1% on a year-over-year basis.
Segmental Details
Homebuilding: The segment's revenues of $1.379 billion decreased 1.1% from the prior-year quarter. The number of homes delivered of 2,788 units was down 3% from the year-ago period. The average selling price, or ASP, increased 2% from a year ago to $494,500.
Net orders declined 49% to 2,142 units from the prior year. The value of net orders also fell a whopping 53% from the year-ago quarter to $1 billion.
The cancelation rate, as a percentage of gross orders, was 36% compared with 11% a year ago. Quarter-end backlog totaled 7,016 homes, down 41% from the year-ago figure. Further, potential housing revenues from backlog declined 42% from the prior-year period to $3.31 billion.
Nevertheless, the average community count and the ending community count rose 18% and 23% from a year ago to 251 and 256, respectively.
Within homebuilding, the adjusted housing gross margin declined 60 basis points (bps) year over year to 21.8%. The decrease was due to more construction costs as well as the impacts of higher homebuyer concessions, given a softening housing market.
Selling, general and administrative expenses, as a percentage of housing revenues, improved 10 bps from the year-ago figure to 10.1%, reflecting lower expenses on approximately the same revenues. Homebuilding’s operating margin (excluding inventory-related charges) was down 50 bps to 11.7%.
Financial Services: The segment's revenues rose 24.6% year over year to $5.8 million. Pretax income of $6 million, down from $8.4 million reported a year ago.
Financial Position
KB Home had cash and cash equivalents of $260.1 million as of Feb 28, 2023, down from $328.5 million at fiscal 2022-end. The company had a total liquidity of $1.24 billion, including $983 million of available capacity under the unsecured revolving credit facility.
As of the fiscal first-quarter end, the debt-to-capital ratio was 32.6%, down from 33.4% a year ago.
In first-quarter fiscal 2023, it repurchased approximately 2 million shares of its outstanding common stock for $75 million.
2Q23 Guidance
The company expects housing revenues of $1.35-$1.5 billion, whereas it reported $1.71 billion in the year-ago quarter. ASP is likely to be $480,000, suggesting a decline from $494,300 reported a year ago. The homebuilding operating margin (assuming no inventory-related charges) is expected to be between 9.5% and 10.5%. This compares unfavorably with the year-ago figure of 15.4%.
Assuming no inventory-related charges, KB Home expects housing gross margin of 20-21%, whereas it reported 25.3% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10.3-10.8% (up from the year-ago figure of 9.8%). It projects an effective tax rate of 24%. The company expects average community count improvement of 15-20%.
FY23 Guidance
For the full year, it anticipates housing revenues of $5.20-$5.90 billion, indicating a decline from the fiscal 2022 reported level of $6.88 billion. ASP is likely to be $480,000-$490,000, whereas it reported $500,800 a year ago.
The homebuilding operating margin (assuming no inventory-related charges) is expected between 10% and 11%.
Assuming no inventory-related charges, KB Home expects housing gross margin of 20.5-21.5%, whereas it reported 24.8% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10-11%. It projects an effective tax rate of 24%. The company expects average community count improvement in the low-double-digit percentage range.
Return on equity is expected in the low-double digits.
Zacks Rank
KB Home currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Key Picks
Some better-ranked stocks in the same space are NVR, Inc. (NVR - Free Report) , Taylor Morrison Home Corporation (TMHC - Free Report) and Toll Brothers, Inc. (TOL - Free Report) .
A disciplined business model, and focus on maximizing liquidity and minimizing risks have helped NVR. The lot acquisition strategy helps the company avoid financial requirements and risks associated with direct land ownership and land development. This strategy allows it to gain efficiencies and a competitive edge over its peers.
NVR currently sports a Zacks Rank #1. NVR has seen an upward estimate revision for 2023 earnings over the past 30 days to $394.77 per share from $357.51. Shares of the company have gained 37.4% in the past six months.
Scottsdale, AZ-based homebuilder Taylor Morrison's ongoing operational enhancements, acquisition synergies and robust pricing power have more than offset the inflationary pressure and delays in some closings.
TMHC currently sports a Zacks Rank #1. The Zacks Consensus Estimate for its 2023 earnings has been upwardly revised to $6.46 per share from $5.47 over the past 30 days. Shares of the company have gained 59.4% in the past six months.
Based in Horsham, PA, Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and a solid backlog.
TOL currently carries a Zacks Rank #2 (Buy). Earnings estimates for fiscal 2023 have increased to $8.66 per share from $7.87 over the past 30 days. Shares of the company have gained 40.6% in the past six months.