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KB Home (KBH) Q1 Earnings Beat Expectations, Revenues Lag
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KB Home (KBH - Free Report) surpassed the Zacks Consensus Estimate in first-quarter fiscal 2018 on the top line but failed to meet the same on the bottom line. Following the release, shares of the company have gained 0.5% in the after-hours trading session on Mar 22.
Quarterly adjusted earnings of 40 cents per share outpaced the Zacks Consensus Estimate of 30 cents by 33.3% and increased a significant 116.7% from 15 cents in the year-ago period.
Total revenues of $871.6 million missed the consensus mark of $887 million. The top line, however, improved 6% year over year, driven by higher housing revenues.
Segment Details
Homebuilding Revenues: In the reported quarter, homebuilding revenues increased 6.5% from the prior-year quarter to $869.2 million, driven by an increase in the number of homes delivered and average selling price or ASP. While land generated $2.7 million in revenues (down 49.7% from the year-ago quarter), housing revenues came in at $866.5 million (up 6.9%).
Net orders increased 8% to 2,784 homes, increasing across the board. Value of net orders increased 8% to $1.17 billion.
Number of homes delivered remained unchanged from the year-ago level at 2,223 units. Deliveries increased in the Southwest, while it decreased in the other three regions. Average selling price went up 7% to $389,800.
At the end of the reported quarter, average community count was 222, down 7% year over year.
The company’s backlog totaled 4,972 homes (as of Feb 28, 2018), up 4% from a year ago. Potential housing revenues from backlog increased 10% to $1.97 billion. Although the Southwest and Southeast regions registered gains, backlog decreased in West Coast and Central.
Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) expanded 150 basis points (bps) year over year to 21.4%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 11%, reflecting a decrease of 50 bps from the year-ago quarter. This marks a record low first-quarter ratio in the company's history.
Financial Services: Financial Services’ revenues grew 2.9% year over year to $2.4 million.
Financial Position
KB Home had homebuilding cash and cash equivalents of $560.3 million as of Feb 28, 2018, lower than $720.6 million as of Nov 30, 2017. Inventories were $3.4 billion, up from $3.3 billion as of Nov 30, 2017. Net cash used in operating activities was $141.7 million in fiscal first quarter, compared with $77 million a year ago.
The ratio of debt to capital was 56.0% as of Feb 28, 2018, while the that of net debt to capital was 49.3%, which is within the company’s 2019 target range under its Returns-Focused Growth Plan.
Second-Quarter Guidance
KB Home expects housing revenues between $990 million and $1.05 billion and ASP of around $400,000-$405,000. Meanwhile, SG&A ratio will likely be in the range of 10.6-11.1%. Average community count is anticipated to be down mid-single digits versus 238 communities in the second quarter of 2017.
The company expects second-quarter housing gross profit margin in the range of 16.8-17.2% (16-16.5% expected earlier).
Adjusted operating margin (excluding the impact of any inventory-related charges) is expected to be within 5.9-6.4%.
Fiscal 2018 Guidance
KB Home has narrowed its housing revenue guided range to $4.55-$4.85 billion from prior expectation of $4.5-$4.9 billion. The company has increased its ASP projection to the range of $400,000-$410,000, from earlier expectation of $395,000-$405,000. Average community count is now anticipated between flat and 5% down year over year.
The company boosted its housing gross profit margin (excluding inventory-related charges) expectation to the range of 17.4-17.9% (earlier it was 17.2-17.7%), reflecting an improvement of 50-100 bps. SG&A ratio will likely be around 9.7-10%, approximately flat from fiscal 2017 level.
Adjusted operating margin is now expected to be in the range of 7.4-8% (from prior 7.2-7.7%).
Meritage Homes and Lyon William are expected to witness 30.4% and 38% increase in 2018 earnings.
Beazer Homes is expected to witness 112.5% growth in earnings this quarter.
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KB Home (KBH) Q1 Earnings Beat Expectations, Revenues Lag
KB Home (KBH - Free Report) surpassed the Zacks Consensus Estimate in first-quarter fiscal 2018 on the top line but failed to meet the same on the bottom line. Following the release, shares of the company have gained 0.5% in the after-hours trading session on Mar 22.
Quarterly adjusted earnings of 40 cents per share outpaced the Zacks Consensus Estimate of 30 cents by 33.3% and increased a significant 116.7% from 15 cents in the year-ago period.
Total revenues of $871.6 million missed the consensus mark of $887 million. The top line, however, improved 6% year over year, driven by higher housing revenues.
Segment Details
Homebuilding Revenues: In the reported quarter, homebuilding revenues increased 6.5% from the prior-year quarter to $869.2 million, driven by an increase in the number of homes delivered and average selling price or ASP. While land generated $2.7 million in revenues (down 49.7% from the year-ago quarter), housing revenues came in at $866.5 million (up 6.9%).
Net orders increased 8% to 2,784 homes, increasing across the board. Value of net orders increased 8% to $1.17 billion.
Number of homes delivered remained unchanged from the year-ago level at 2,223 units. Deliveries increased in the Southwest, while it decreased in the other three regions. Average selling price went up 7% to $389,800.
At the end of the reported quarter, average community count was 222, down 7% year over year.
The company’s backlog totaled 4,972 homes (as of Feb 28, 2018), up 4% from a year ago. Potential housing revenues from backlog increased 10% to $1.97 billion. Although the Southwest and Southeast regions registered gains, backlog decreased in West Coast and Central.
KB Home Price, Consensus and EPS Surprise
KB Home Price, Consensus and EPS Surprise | KB Home Quote
Margins
Adjusted housing gross profit margin (a metric that excludes the amortization of previously capitalized interest and inventory-related charges) expanded 150 basis points (bps) year over year to 21.4%.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) were 11%, reflecting a decrease of 50 bps from the year-ago quarter. This marks a record low first-quarter ratio in the company's history.
Financial Services: Financial Services’ revenues grew 2.9% year over year to $2.4 million.
Financial Position
KB Home had homebuilding cash and cash equivalents of $560.3 million as of Feb 28, 2018, lower than $720.6 million as of Nov 30, 2017. Inventories were $3.4 billion, up from $3.3 billion as of Nov 30, 2017.
Net cash used in operating activities was $141.7 million in fiscal first quarter, compared with $77 million a year ago.
The ratio of debt to capital was 56.0% as of Feb 28, 2018, while the that of net debt to capital was 49.3%, which is within the company’s 2019 target range under its Returns-Focused Growth Plan.
Second-Quarter Guidance
KB Home expects housing revenues between $990 million and $1.05 billion and ASP of around $400,000-$405,000. Meanwhile, SG&A ratio will likely be in the range of 10.6-11.1%. Average community count is anticipated to be down mid-single digits versus 238 communities in the second quarter of 2017.
The company expects second-quarter housing gross profit margin in the range of 16.8-17.2% (16-16.5% expected earlier).
Adjusted operating margin (excluding the impact of any inventory-related charges) is expected to be within 5.9-6.4%.
Fiscal 2018 Guidance
KB Home has narrowed its housing revenue guided range to $4.55-$4.85 billion from prior expectation of $4.5-$4.9 billion. The company has increased its ASP projection to the range of $400,000-$410,000, from earlier expectation of $395,000-$405,000. Average community count is now anticipated between flat and 5% down year over year.
The company boosted its housing gross profit margin (excluding inventory-related charges) expectation to the range of 17.4-17.9% (earlier it was 17.2-17.7%), reflecting an improvement of 50-100 bps. SG&A ratio will likely be around 9.7-10%, approximately flat from fiscal 2017 level.
Adjusted operating margin is now expected to be in the range of 7.4-8% (from prior 7.2-7.7%).
Zacks Rank & Key Picks
KB Home carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the construction sector are Meritage Homes Corporation (MTH - Free Report) , Lyon William Homes and Beazer Homes USA, Inc. (BZH - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meritage Homes and Lyon William are expected to witness 30.4% and 38% increase in 2018 earnings.
Beazer Homes is expected to witness 112.5% growth in earnings this quarter.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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