KB Home (NYSE: KBH) late Thursday reported net income of $57.3 million, or $0.57 per share, for its second quarter ended May 31, up 80% from the comparable quarter last year. Analysts were expecting a gain of $0.48. Shares of KB rose 3.5% in after-market trading on the news.
Among the metrics for the quarter:
- Total revenues grew 10% to $1.10 billion.
- Deliveries increased 5% to 2,717 homes.
- Average selling price rose 4% to $401,800.
- Home building operating income improved 50% to $74.2 million.
- Home building operating income margin increased 180 basis points to 6.8% from 5.0%. Excluding inventory-related charges of $6.5 million in the current quarter and $6.0 million in the year-earlier quarter, home building operating income margin improved 170 basis points to 7.3%.
- Housing gross profit margin expanded 170 basis points to 17.1%.
- Housing gross profit margin excluding inventory-related charges increased 170 basis points to 17.7%.
- Adjusted housing gross profit margin, a metric that excludes inventory-related charges and the amortization of previously capitalized interest, rose 120 basis points to 22.2%.
- Selling, general and administrative expenses as a percentage of housing revenues were 10.4%, the same as last year’s second quarter record low.
- Total pretax income increased 51% to $78.3 million.
- The Company’s effective tax rate of approximately 27% in the quarter decreased from approximately 39% in the prior-year period, primarily due to the reduction in the federal corporate income tax rate under the Tax Cuts and Jobs Act (“TCJA”).
- Net orders increased 3% to 3,532 for the second quarter. Net order value decreased 2% to $1.36 billion. Three of the company’s four regions posted year-over-year increases in net order value.
- Company-wide, net orders per community averaged 5.5 per month, up 15% from 4.8 per month.
- Ending backlog value grew 3% to $2.24 billion, with the number of homes in backlog increasing 3% to 5,787. This was the company’s highest second quarter backlog value in 11 years.
- The cancellation rate as a percentage of gross orders improved to 18% for the second quarter from 21%.
- Average community count decreased 10% to 215. Ending community count declined 11% to 210.
- The company had total liquidity of $1.13 billion, including cash and cash equivalents of $669.8 million.
- Net cash used in operating activities was $19.4 million for the first half of 2018, compared to $64.6 million for the first half of 2017.
- There were no cash borrowings outstanding under the company’s unsecured revolving credit facility.
- Inventories increased 6% to $3.46 billion.
- Investments in land acquisition and development totaled $843.7 million for the six months ended May 31, 2018, of which 60% were made in the company’s West Coast region. Total investments were up 19% from $706.6 million in the prior year.
- Lots owned or controlled totaled 49,551, of which 75% were owned. Total lots grew 7% from the 2017 fiscal year end and were up 10% compared to a year ago.
- Notes payable increased slightly to $2.35 billion from $2.32 billion.
- The ratio of debt to capital was 55.1%, while the ratio of net debt to capital was 46.8%, within the Company’s 2019 target range under its Returns-Focused Growth Plan.
- Subsequent to quarter end, on June 15, 2018, the Company repaid $300.0 million in aggregate principal amount of its 7 1/4% Senior Notes due 2018 at their maturity using internally generated cash.
- Stockholders’ equity of $1.91 billion decreased by $11.7 million mainly due to the non-cash TCJA-related charge of $111.2 million recorded in the first quarter.
- On May 14, 2018, the board of directors authorized the repurchase of additional shares of the Company’s outstanding common stock, bringing the total authorization to 4,000,000 shares. No shares have been repurchased under this authorization.
“In the quarter, we produced double-digit revenue growth, expanded our operating margin and significantly improved our profitability, reflecting solid execution on our core business strategy,” said Jeffrey Mezger, chairman, president and CEO. “Moreover, we measurably increased our absorptions per community by 15%. This result underscores our success in attracting consumers with our personalized Built-to-Order home buying experience and the targeted positioning of our communities in markets that are continuing to exhibit strong demand.”
“We have made meaningful progress on our Returns-Focused Growth Plan objectives,” continued Mezger. “As part of implementing our Plan over the last 18 months, we have used internally generated cash to invest $2.4 billion in land and development, a 26% increase over the preceding 18 months, to drive growth. At the same time, including our repayment of senior notes earlier this month, we have reduced our outstanding debt by nearly $600 million, which will enhance our future gross margins and returns. We expect to continue to generate considerable cash flow from our operations that can be deployed in a balanced manner to enhance stockholder returns.”
