KB Home, Los Angeles (NYSE:KBH) on Wednesday after market close reported net income totaled $37.5 million, or $.40 per diluted share for the fourth quarter ended Nov. 30. The gain was down from $44 million in last year’s fourth quarter but beat analyst estimates of earnings of $0.37 per diuluted share.
For the quarter, revenues of $1.19 billion increased 21%, with land sale revenues of $3.2 million. Deliveries grew 19% to 3,060 homes, with increases in each of the Company’s four regions. The average selling price increased 2% to $387,400.
Net orders for the quarter increased 20% from the comparable quarter in 2015 to 2,254, and net order value grew 27% to $855.9 million. Homes in backlog as of November 30, 2016 rose 11% to 4,420. Ending backlog value grew 19% to $1.52 billion, with double-digit increases in three of the Company’s four regions.
The cancellation rate as a percentage of beginning backlog for the quarter improved to 15% from 19%, and as a percentage of gross orders improved to 25% from 32%. The average community count for the quarter decreased 8% to 231.
Housing gross profit margin decreased 70 basis points to 16.5%. Adjusted housing gross profit margin, a metric that excludes the amortization of previously capitalized interest and inventory impairment and land option contract abandonment charges of $5.5 million, declined 60 basis points to 21.6%. On a sequential basis, this metric improved 40 basis points from the 2016 third quarter.
Selling, general and administrative expenses improved 80 basis points to 9.2% of housing revenues. Home building operating income decreased 20% to $56.0 million, reflecting total inventory-related charges of $36.1 million, compared to $5.1 million. Land sale losses of $30.4 million included $30.6 million of inventory impairment charges related to planned future land sales.
Financial services posted a loss of $.7 million, primarily due to the wind-down of Home Community Mortgage, LLC, the company’s mortgage banking joint venture with Nationstar Mortgage LLC. In connection with the wind-down process, Home Community Mortgage’s operations and certain assets have been transferred to Stearns Lending, LLC. Stearns Lending is currently offering mortgage banking services to the Company’s home buyers. KB and Stearns Lending have formed a mortgage banking joint venture that is expected to be operational in most of the Company’s served markets by the end of the 2017 second quarter, subject to obtaining requisite regulatory approvals.
For the full fiscal year, revenues increased 19% to $3.59 billion with land sale revenues at $7.4 million, compared to $112.8 million a year earlier. Housing revenues grew 23% to $3.58 billion. Deliveries rose 20% to 9,829 homes.
Average selling price increased 3% to $363,800. Home building operating income rose 10% to $152.4 million. Inventory impairment and land option contract abandonment charges totaled $52.8 million, compared to $9.6 million. Net income grew 25% to $105.6 million, and earnings per diluted share increased 32% to $1.12 from $.85.
At the close of the fiscal year, KB had cash and cash equivalents of $592.1 million, inventories of $3.40 billion, with investments in land acquisition and development totaling $1.36 billion for the year ended November 30, 2016. Lots owned or controlled totaled 44,825, of which 79% were owned. There were no cash borrowings outstanding under the Company’s unsecured revolving credit facility.
In 2016, the Company repurchased nearly 8.4 million shares of its common stock at a total cost of $85.9 million, while improving its ratio of debt to capital to 60.5% and its ratio of net debt to total capital to 54.3%. All of these repurchases occurred during the 2016 first quarter.
Reflecting the first-quarter repurchases of common stock, average diluted shares outstanding for the quarter decreased 7% from the year-earlier quarter to 95.7 million. Book value per share increased 11% to $20.25.
As announced last month, the Company elected to exercise its optional redemption rights under the terms of its 9.100% Senior Notes due 2017, which mature on September 15, 2017. On January 13, 2017, the Company will redeem $100.0 million in aggregate principal amount of the notes using internally generated cash. In connection with this early extinguishment of debt, the company said it will take a charge of approximately $5.4 million in the 2017 first quarter.
“With healthy net order activity in the fourth quarter contributing to our highest backlog value level in 10 years, we are entering 2017 with strong momentum,” said Jeffrey Mezger, chairman, president and CEO. “Our strategy is to continue to grow the scale of our business within our current geographic footprint, increase our operating profits, and generate cash internally to both support our future growth and improve our leverage ratio. We believe we are well positioned to capitalize on the continuing increase in demand from first-time homebuyers accompanying current positive economic and demographic trends in many of our served markets.”
