KB Home (NYSE: KBH) after market close Thursday reported net income of $14.3 million, or $0.15 per share, for its first quarter ended February 28, 2017. The gain compares with a profit of $13.1 million in the prior year quarter. Analysts were expecting a gain of 13 cents a share.
The results included:
- Total revenues of $818.6 million increased 21%.
- Deliveries grew 14% to 2,224 homes, with increases in each of the Company’s four regions.
- Average selling price increased 6% to $364,600.
- Home-building operating income rose 33% to $25.3 million, including total inventory-related charges of $4.0 million. Inventory-related charges in the 2016 first quarter totaled $2.0 million.
- Home-building operating income margin increased 30 basis points to 3.1%. Excluding total inventory-related charges, home-building operating income margin improved 50 basis points to 3.6%.
- Housing gross profit margin decreased 140 basis points to 14.6%, which included 50 basis points of inventory-related charges.
- Adjusted housing gross profit margin, a metric that excludes the amortization of previously capitalized interest and inventory-related charges, declined 80 basis points to 19.9%.
- Selling, general and administrative expenses improved 160 basis points from 13.1% of housing revenues to 11.5%, a record low first-quarter ratio for the Company.
- Financial services generated pretax income of $1.6 million, up from $1.2 million.
- The company’s recently formed mortgage banking joint venture with Stearns Lending, LLC, which had no significant impact on the current quarter results, is expected to be operational in most of the company’s served markets by the end of the 2017 second quarter, subject to obtaining all requisite regulatory approvals and clearances.
- Interest expense of $6.3 million included a charge of $5.7 million associated with the Company’s optional early redemption of $100 million in aggregate principal amount of its 9.100% senior notes due 2017, which was announced in December. The redemption was completed on January 13, 2017.
- Pretax income increased 34% to $21.5 million. Excluding the charges related to inventory and the early extinguishment of debt, pretax income grew 73% to $31.2 million.
- Income tax expense of $7.2 million was favorably impacted by $1.1 million of federal energy tax credits, and represented an effective tax rate of 33.6%. In the 2016 first quarter, the Company’s effective tax rate of 18.1% reflected a favorable tax-credit impact of $3.3 million.
- Net orders for the quarter increased 14% to 2,580, and net order value grew 32% to $1.09 billion.
- In the company’s West Coast region, net order value increased 73%, reflecting 49% growth in net orders and a 16% increase in the average selling price of those orders.
- Homes in backlog rose 11% to 4,776. Ending backlog value grew 25% to $1.79 billion, the company’s highest first quarter backlog value since 2007.
- The average selling price of homes in backlog increased 12%.
- The cancellation rate as a percentage of beginning backlog for the quarter improved to 18% from 21%, and as a percentage of gross orders improved to 23% from 27%.
- Average community count for the quarter decreased slightly to 238, while the ending community count remained essentially flat at 240.
- The company had total liquidity of $595.9 million, including cash and cash equivalents of $351.9 million and availability under its unsecured revolving credit facility at quarter’s end.
- There were no cash borrowings outstanding under the Company’s unsecured revolving credit facility.
- Inventories were $3.42 billion, with investments in land acquisition and development totaling $302.1 million for the quarter.
- Lots owned or controlled totaled 44,471, of which 80% were owned.
- Notes payable decreased to $2.50 billion from $2.64 billion, largely due to the early redemption of $100 million of senior notes using internally generated cash.
- The ratio of debt to capital was 59.1%, and the ratio of net debt to capital was 55.3%.
“We are seeing particular strength in California, our largest market, where we had significant year-over-year improvement in many key metrics. Company-wide, our operations are maintaining a strong cadence that is producing more reliable, predictable results,” said Jeffrey Mezger, chairman, president and CEO. “We continue to progress on our returns-focused growth roadmap, which includes expanding the scale of our business within our current geographic footprint, increasing our operating income margin, generating cash from operations to support a balanced approach to future growth, reducing debt and improving our leverage ratio.”
