KB Home (KBH - Free Report) ended fiscal 2017 on an impressive note based on solid housing fundamentals. The homebuilder surpassed expectations in fourth-quarter fiscal 2017 on both top and bottom lines. Following the release, shares of the company gained 3.4% in the after-hour trading session on Jan 10.
Quarterly earnings of 84 cents per share outpaced the Zacks Consensus Estimate of 77 cents by 9.1% and increased a significant 110% from 40 cents in the year-ago period.
Total revenues of $1.4 billion beat the Zacks Consensus Estimate of $1.36 million by 3.3%. The top line also improved 17.7% year over year, driven by higher housing revenues.
Homebuilding Revenues: In the reported quarter, homebuilding revenues increased 17.7% year over year to $1.39 billion, driven by an increase in the number of homes delivered and average selling price or ASP. While land generated $7.97 million in revenues (up 145.5% from the year-ago quarter), housing revenues came in at $1.39 billion (up 17.4%).
Net orders increased 2% to 2,296 homes, increasing across the board. Value of net orders increased 9% to $935.4 million.
Number of homes delivered jumped 9% to 3,340 homes. Deliveries increased in each of the company’s regions, barring Southeast. Average selling price went up 7.5% to $416,500.
At the end of the reported quarter, average community count was 228, slightly down from 231 in the year-ago period.
The company’s backlog totaled 4,411 homes (as of Nov 30, 2017), roughly flat year over year. Potential housing revenues from backlog increased 9% to $1.66 billion, with all the regions registering gains, except Southeast and Central.
Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) expanded 190 basis points (bps) year over year to 23.5%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 8.7%, reflecting an increase of 50 bps year over year. This marks a record low fourth-quarter ratio in the company's history.
Financial Services: Financial Services’ revenues grew 20% year over year to $3.98 million.
Fiscal 2017 Highlights
KB Home’s earnings came in at $1.85 per share, reflecting an increase of 65.2% year over year. The company’s total revenues were $4.4 billion, up 21.5% year over year. Deliveries increased 11% and ASP was up 9% in the year. The company ended the year with 224 communities, down 5% from a year ago.
The company’s adjusted operating margin (excluding inventory-related charges) expanded 140 bps year over year to 7.1%. SG&A expenses, as a percentage of housing revenues, improved 110 bps to 9.8%.
KB Home had homebuilding cash and cash equivalents of $720.6 million as of Nov 30, 2017, lower than $592.1 million as of Nov 30, 2016. Inventories were $3.3 billion, down from $3.4 billion as of Nov 30, 2016.
Net cash provided by operating activities increased 172% to $513.2 million in fiscal 2017 from the year-ago level.
Net debt was $1.6 billion as of Nov 30, 2017, compared with $2.05 billion as of Nov 30, 2016. This reflects a net debt-to-capitalization ratio of 45.4% in the year, lower than 54.3% at the end of 2016.
KB Home expects housing revenues between $840 million and $880 million, ASP of around $387,000-$392,000. Meanwhile, SG&A ratio will likely be in the range of 11.7-12%.
The company expects first-quarter housing gross profit margin in the range of 16-16.5%. This reflects a typical, seasonal first quarter decrease in operating leverage from lower revenues. However, on a year-over-year basis, the guidance reflects 90 bps to 140 bps improvement.
Adjusted operating margin is expected to be in the range of 4.3-4.7%.
Fiscal 2018 Guidance
KB Home expects housing revenues to be in the range of $4.5 billion to $4.9 billion. ASP is expected in the range of $395,000-$405,000. Average community count is anticipated to remain relatively flat compared with fiscal 2017.
The company expects housing gross profit margin in the range of 17.2% to 17.7%, reflecting an improvement of 30 bps to 80 bps. SG&A ratio will likely be around 9.7% to 10%, approximately flat from fiscal 2017 level.
Adjusted operating margin is expected to be in the range of 7.2% to 7.7%.
Lennar Corporation’s (LEN - Free Report) fourth-quarter fiscal 2017 adjusted earnings of $1.29 per share fell shy of the Zacks Consensus Estimate of $1.50 by 14% and decreased 1.5% from the year-ago level of $1.31. Nonetheless, total revenues of $3.79 billion beat the Zacks Consensus Estimate of $3.62 billion by 4.5%.
Zacks Rank & Other Key Picks
KB Home currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
A few other top-ranked stocks in the construction sector are D.R. Horton, Inc. (DHI - Free Report) , sporting a Zacks Rank #1, and NVR Inc. (NVR - Free Report) , carrying a Zacks Rank #2 (Buy).
D.R. Horton is likely to witness a 24.8% increase in fiscal 2018 earnings.
NVR is expected to witness 20.6% growth in 2018 earnings.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>