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KB Home (KBH - Free Report) reported better-than-expected results for second-quarter fiscal 2023 (ended May 31, 2023). Both earnings and revenues beat the Zacks Consensus Estimate. The company’s earnings and revenues surpassed the consensus mark in two consecutive quarters.
Shares of this leading homebuilder gained 1.9% during the trading session but dropped 0.8% in the after-market trading session on Jun 22.
Pertaining to the quarterly results, Jeffrey Mezger, chairman, president and chief executive officer, stated, “The improvement in demand we started to see in February was sustained throughout our second quarter, as we achieved monthly sequential increases in our net orders, resulting in an overall absorption pace of 5.2 net orders per month, per community.”
Earnings & Revenue Discussion
KBH reported adjusted earnings of $1.94 per share, which topped the consensus estimate of $1.28 by 51.6%. In the year-ago period, the company reported earnings of $2.32 per share.
Total revenues of $1.77 billion beat the consensus mark of $1.44 billion by 23.1% and increased 2.6% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.76 billion increased 2.5% from the prior-year quarter’s levels. The number of homes delivered was 3,666 units, up 6% from the year-ago period’s levels. However, the average selling price, or ASP, declined 3% from a year ago to $479,500.
Net orders grew 1% to 3,936 units from the prior year. The value of net orders, however, was down 11% from the year-ago quarter to $1.9 billion due to lower ASP. Sequentially, net orders grew 84% in units and 90% in value, respectively.
The cancelation rate, as a percentage of gross orders, was 22% compared with 36% in the prior quarter. In the year-ago period, it was 17%.
Quarter-end backlog totaled 7,286 homes, down 40.9% from the year-ago figure. Further, potential housing revenues from backlog declined 43.5% from the prior-year period to $3.46 billion.
Nevertheless, the average community count and the ending community count rose 20% and 16% from the year-ago period to 253 and 249, respectively.
Within homebuilding, the adjusted housing gross margin declined 390 basis points (bps) year over year to 21.4%. The decrease was due to more construction costs and lower pricing, as well as the impacts of higher homebuyer concessions.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — improved 20 bps from the year-ago figure to 9.6%. Homebuilding’s operating margin (excluding inventory-related charges) was down 380 bps to 11.7%.
Financial Services: The segment's revenues rose 42.7% year over year to $7.5 million. Pretax income was $11.4 million, down from $18.7 million reported a year ago.
Financial Position
KB Home had cash and cash equivalents of $557 million as of May 31, 2023, up from $328.5 million at the fiscal 2022-end. The company had total liquidity of $1.64 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility.
As of the fiscal second-quarter end, the debt-to-capital ratio was 30.9%, down from 33.4% a year ago.
In the fiscal second-quarter 2023, it repurchased approximately 2.2 million shares of its outstanding common stock for $92 million.
Fiscal 2023 Guidance
For the full year, it anticipates housing revenues within $5.80-$6.20 billion range (versus the earlier projection of $5.20-$5.90 billion), down from the fiscal 2022 level of $6.88 billion. ASP is likely to be $485,000 (compared with $480,000-$490,000 previously expected), down from $500,800 reported a year ago.
Homebuilding’s operating margin (assuming no inventory-related charges) is expected to be 11%.
Assuming no inventory-related charges, KB Home expects the housing gross margin to be approximately 21.2%, down from 24.8% reported a year ago. Earlier, the company expected a gross margin in the range of 20.5-21.5%.
SG&A expenses, as a percentage of housing revenues, are likely to be 10.3%. It projects an effective tax rate of approximately 23%. The company expects the average community count to increase 10% and ending community count flat, year over year.
Zacks Rank & Key Picks
KB Home currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same space are as follows:
PulteGroup Inc. (PHM - Free Report) : The company has been reaping benefits from the successful execution of strategic initiatives to boost profitability, with a focus on entry-level homes. PulteGroup, presently sports a Zacks Rank #1 (Strong Buy), has jumped 66.4% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for its 2023 and 2024 earnings has been upwardly revised by 1.9% and 1.8%, respectively, over the past 30 days. Its earnings topped consensus estimates in three of the trailing four quarters and missed once, with the average surprise being 15.6%. Again, it carries an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
M.D.C. Holdings : This U.S.-based homebuilding and financial services company gained 41.9% this year.
Earnings estimates for this Zacks Rank #1 company’s 2023 have increased to $3.55 per share from $3.39 per share over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed on other two occasions, the positive average being 27.8%. Impressively, it carries a VGM Score of A.
Toll Brothers (TOL - Free Report) : This Horsham, PA-based company, a leading builder of luxury homes, has gained 52.7% this year.
TOL currently sports a Zacks Rank #1. Earnings estimates for fiscal 2023 have increased to $10.61 per share from $8.66 per share over the past 30 days. The company’s earnings topped the Zacks Consensus Estimate in all the trailing four quarters, the average being 24.4%. Again, it carries an impressive VGM Score of A.
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KB Home (KBH) Q2 Earnings & Revenues Beat Estimates, View Raised
KB Home (KBH - Free Report) reported better-than-expected results for second-quarter fiscal 2023 (ended May 31, 2023). Both earnings and revenues beat the Zacks Consensus Estimate. The company’s earnings and revenues surpassed the consensus mark in two consecutive quarters.
Shares of this leading homebuilder gained 1.9% during the trading session but dropped 0.8% in the after-market trading session on Jun 22.
Pertaining to the quarterly results, Jeffrey Mezger, chairman, president and chief executive officer, stated, “The improvement in demand we started to see in February was sustained throughout our second quarter, as we achieved monthly sequential increases in our net orders, resulting in an overall absorption pace of 5.2 net orders per month, per community.”
Earnings & Revenue Discussion
KBH reported adjusted earnings of $1.94 per share, which topped the consensus estimate of $1.28 by 51.6%. In the year-ago period, the company reported earnings of $2.32 per share.
KB Home Price, Consensus and EPS Surprise
KB Home price-consensus-eps-surprise-chart | KB Home Quote
Total revenues of $1.77 billion beat the consensus mark of $1.44 billion by 23.1% and increased 2.6% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.76 billion increased 2.5% from the prior-year quarter’s levels. The number of homes delivered was 3,666 units, up 6% from the year-ago period’s levels. However, the average selling price, or ASP, declined 3% from a year ago to $479,500.
Net orders grew 1% to 3,936 units from the prior year. The value of net orders, however, was down 11% from the year-ago quarter to $1.9 billion due to lower ASP. Sequentially, net orders grew 84% in units and 90% in value, respectively.
The cancelation rate, as a percentage of gross orders, was 22% compared with 36% in the prior quarter. In the year-ago period, it was 17%.
Quarter-end backlog totaled 7,286 homes, down 40.9% from the year-ago figure. Further, potential housing revenues from backlog declined 43.5% from the prior-year period to $3.46 billion.
Nevertheless, the average community count and the ending community count rose 20% and 16% from the year-ago period to 253 and 249, respectively.
Within homebuilding, the adjusted housing gross margin declined 390 basis points (bps) year over year to 21.4%. The decrease was due to more construction costs and lower pricing, as well as the impacts of higher homebuyer concessions.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — improved 20 bps from the year-ago figure to 9.6%. Homebuilding’s operating margin (excluding inventory-related charges) was down 380 bps to 11.7%.
Financial Services: The segment's revenues rose 42.7% year over year to $7.5 million. Pretax income was $11.4 million, down from $18.7 million reported a year ago.
Financial Position
KB Home had cash and cash equivalents of $557 million as of May 31, 2023, up from $328.5 million at the fiscal 2022-end. The company had total liquidity of $1.64 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility.
As of the fiscal second-quarter end, the debt-to-capital ratio was 30.9%, down from 33.4% a year ago.
In the fiscal second-quarter 2023, it repurchased approximately 2.2 million shares of its outstanding common stock for $92 million.
Fiscal 2023 Guidance
For the full year, it anticipates housing revenues within $5.80-$6.20 billion range (versus the earlier projection of $5.20-$5.90 billion), down from the fiscal 2022 level of $6.88 billion. ASP is likely to be $485,000 (compared with $480,000-$490,000 previously expected), down from $500,800 reported a year ago.
Homebuilding’s operating margin (assuming no inventory-related charges) is expected to be 11%.
Assuming no inventory-related charges, KB Home expects the housing gross margin to be approximately 21.2%, down from 24.8% reported a year ago. Earlier, the company expected a gross margin in the range of 20.5-21.5%.
SG&A expenses, as a percentage of housing revenues, are likely to be 10.3%. It projects an effective tax rate of approximately 23%. The company expects the average community count to increase 10% and ending community count flat, year over year.
Zacks Rank & Key Picks
KB Home currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same space are as follows:
PulteGroup Inc. (PHM - Free Report) : The company has been reaping benefits from the successful execution of strategic initiatives to boost profitability, with a focus on entry-level homes. PulteGroup, presently sports a Zacks Rank #1 (Strong Buy), has jumped 66.4% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for its 2023 and 2024 earnings has been upwardly revised by 1.9% and 1.8%, respectively, over the past 30 days. Its earnings topped consensus estimates in three of the trailing four quarters and missed once, with the average surprise being 15.6%. Again, it carries an impressive VGM Score of A. This helps to identify stocks with the most attractive value, growth and momentum.
M.D.C. Holdings : This U.S.-based homebuilding and financial services company gained 41.9% this year.
Earnings estimates for this Zacks Rank #1 company’s 2023 have increased to $3.55 per share from $3.39 per share over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed on other two occasions, the positive average being 27.8%. Impressively, it carries a VGM Score of A.
Toll Brothers (TOL - Free Report) : This Horsham, PA-based company, a leading builder of luxury homes, has gained 52.7% this year.
TOL currently sports a Zacks Rank #1. Earnings estimates for fiscal 2023 have increased to $10.61 per share from $8.66 per share over the past 30 days. The company’s earnings topped the Zacks Consensus Estimate in all the trailing four quarters, the average being 24.4%. Again, it carries an impressive VGM Score of A.