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Why Is KB Home (KBH) Up 0.6% Since Last Earnings Report?
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It has been about a month since the last earnings report for KB Home (KBH - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is KB Home due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
KB Home reported better-than-expected results in second-quarter fiscal 2023 (ended May 31, 2023). Both the earnings and revenues beat the Zacks Consensus Estimate. The company’s earnings and revenues surpassed the consensus mark in two consecutive quarters.
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 also 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.
Q3 Guidance
The company expects housing revenues of $1.35-$1.5 billion, whereas it reported $1.84 billion in the year-ago quarter. ASP is likely to be approximately $470,000, suggesting a decline from $508,700 reported a year ago. The homebuilding operating margin (assuming no inventory-related charges) is expected to be between 9.5% and 10.1%. This compares unfavorably with the year-ago figure of 17.7%.
Assuming no inventory-related charges, KB Home expects housing gross margin of 20.4-21%, whereas it reported 26.7% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10.6-11.2% (up from the year-ago figure of 8.9%). It projects an effective tax rate of approximately 23%. The company expects average community count improvement of approximately 10%.
Fiscal 2023 Guidance
For the full year, it anticipates housing revenues within $5.80-$6.20 billion range (versus an 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 of earlier expectation), 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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 17.63% due to these changes.
VGM Scores
Currently, KB Home has a great Growth Score of A, though it is lagging a lot 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 quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise KB Home has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
KB Home belongs to the Zacks Building Products - Home Builders industry. Another stock from the same industry, Lennar (LEN - Free Report) , has gained 4% over the past month. More than a month has passed since the company reported results for the quarter ended May 2023.
Lennar reported revenues of $8.05 billion in the last reported quarter, representing a year-over-year change of -3.8%. EPS of $2.94 for the same period compares with $4.69 a year ago.
Lennar is expected to post earnings of $3.50 per share for the current quarter, representing a year-over-year change of -32.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
Lennar has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Why Is KB Home (KBH) Up 0.6% Since Last Earnings Report?
It has been about a month since the last earnings report for KB Home (KBH - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is KB Home due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
KB Home’s Q2 Earnings & Revenues Beat Estimates, Raises View
KB Home reported better-than-expected results in second-quarter fiscal 2023 (ended May 31, 2023). Both the earnings and revenues beat the Zacks Consensus Estimate. The company’s earnings and revenues surpassed the consensus mark in two consecutive quarters.
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 also 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.
Q3 Guidance
The company expects housing revenues of $1.35-$1.5 billion, whereas it reported $1.84 billion in the year-ago quarter. ASP is likely to be approximately $470,000, suggesting a decline from $508,700 reported a year ago. The homebuilding operating margin (assuming no inventory-related charges) is expected to be between 9.5% and 10.1%. This compares unfavorably with the year-ago figure of 17.7%.
Assuming no inventory-related charges, KB Home expects housing gross margin of 20.4-21%, whereas it reported 26.7% a year ago. SG&A expenses, as a percentage of housing revenues, are likely to be 10.6-11.2% (up from the year-ago figure of 8.9%). It projects an effective tax rate of approximately 23%. The company expects average community count improvement of approximately 10%.
Fiscal 2023 Guidance
For the full year, it anticipates housing revenues within $5.80-$6.20 billion range (versus an 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 of earlier expectation), 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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 17.63% due to these changes.
VGM Scores
Currently, KB Home has a great Growth Score of A, though it is lagging a lot 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 quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise KB Home has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
KB Home belongs to the Zacks Building Products - Home Builders industry. Another stock from the same industry, Lennar (LEN - Free Report) , has gained 4% over the past month. More than a month has passed since the company reported results for the quarter ended May 2023.
Lennar reported revenues of $8.05 billion in the last reported quarter, representing a year-over-year change of -3.8%. EPS of $2.94 for the same period compares with $4.69 a year ago.
Lennar is expected to post earnings of $3.50 per share for the current quarter, representing a year-over-year change of -32.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.
Lennar has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.