Revenues Up 21% to $818.6 MillionNet
Orders Increase 14% to 2,580; Net Order Value Up 32% to $1.09
BillionBacklog Value Increases 25% to $1.79 Billion
KB Home (NYSE: KBH) today reported results for its first quarter
ended February 28, 2017.
“Building on our 2016 accomplishments, we delivered a solid
financial and operational performance in the first quarter and
extended the upward trajectory of our business,” said Jeffrey
Mezger, chairman, president and chief executive officer. “With
double-digit year-over-year growth in deliveries, revenues, pretax
income, net orders and backlog, we are benefiting from the
effective execution of our core business strategy and a favorable
housing environment supported by healthy demand and constrained
supply. 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.”
“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,” said Mezger. “In alignment with this strategy, we completed
the early redemption of $100 million of our senior notes in the
quarter using internally generated cash. Based on the steadily
increasing momentum we have sustained over the past few years, and
the positive start to 2017, we believe we are well positioned to
achieve our objectives for the year.”
Three Months Ended February 28, 2017
(comparisons on a year-over-year basis)
- 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.
- Homebuilding 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.
- Homebuilding operating income margin
increased 30 basis points to 3.1%. Excluding total
inventory-related charges, homebuilding 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 income increased to $14.3 million,
or $.15 per diluted share.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- 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.
Balance Sheet as of February 28, 2017
(comparisons to November 30, 2016)
- 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.
- 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%.
Earnings Conference Call
The conference call to discuss the Company’s first quarter 2017
earnings will be broadcast live TODAY at 2:00 p.m. Pacific Time,
5:00 p.m. Eastern Time. To listen, please go to the Investor
Relations section of the Company’s website at www.kbhome.com.
About KB Home
KB Home (NYSE: KBH) is one of the largest and most recognized
homebuilders in the United States and an industry leader in
sustainability, building innovative and highly energy- and
water-efficient new homes. Founded in 1957 and the first
homebuilder listed on the New York Stock Exchange, the Company has
built nearly 600,000 homes for families from coast to coast.
Distinguished by its personalized homebuilding approach, KB Home
lets each buyer choose their lot location, floor plan, décor
choices, design features and other special touches that matter most
to them. To learn more about KB Home, call 888-KB-HOMES,
visit www.kbhome.com or
connect on Facebook.com/KBHome or
Twitter.com/KBHome.
Forward-Looking and Cautionary
Statements
Certain matters discussed in this press release, including any
statements that are predictive in nature or concern future market
and economic conditions, business and prospects, our future
financial and operational performance, or our future actions and
their expected results are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on current expectations and
projections about future events and are not guarantees of future
performance. We do not have a specific policy or intent of updating
or revising forward-looking statements. Actual events and results
may differ materially from those expressed or forecasted in
forward-looking statements due to a number of factors. The most
important risk factors that could cause our actual performance and
future events and actions to differ materially from such
forward-looking statements include, but are not limited to the
following: general economic, employment and business conditions;
population growth, household formations and demographic trends;
conditions in the capital, credit and financial markets; our
ability to access external financing sources and raise capital
through the issuance of common stock, debt or other securities,
and/or project financing, on favorable terms; material and trade
costs and availability; changes in interest rates; our debt level,
including our ratio of debt to capital, and our ability to adjust
our debt level and maturity schedule; our compliance with the terms
of our revolving credit facility; volatility in the market price of
our common stock; weak or declining consumer confidence, either
generally or specifically with respect to purchasing homes;
competition from other sellers of new and resale homes; weather
events, significant natural disasters and other climate and
environmental factors, including the prolonged drought and related
water-constrained conditions in the southwest United States and
California; government actions, policies, programs and regulations
directed at or affecting the housing market (including the
Dodd-Frank Act, tax benefits associated with purchasing and owning
a home, and the standards, fees and size limits applicable to the
purchase or insuring of mortgage loans by government-sponsored
enterprises and government agencies), the homebuilding industry, or
construction activities; changes in existing tax laws or enacted
corporate income tax rates; the availability and cost of land in
desirable areas; our warranty claims experience with respect to
homes previously delivered and actual warranty costs incurred;
costs and/or charges arising from regulatory compliance
requirements or from legal, arbitral or regulatory proceedings,
investigations, claims or settlements, including unfavorable
outcomes in any such matters resulting in actual or potential
monetary damage awards, penalties, fines or other direct or
indirect payments, or injunctions, consent decrees or other
voluntary or involuntary restrictions or adjustments to our
business operations or practices that are beyond our current
expectations and/or accruals; our ability to use/realize the net
deferred tax assets we have generated; our ability to successfully
implement our current and planned strategies and initiatives
related to our product, geographic and market positioning, gaining
share and scale in our served markets; our operational and
investment concentration in markets in California; consumer
interest in our new home communities and products, particularly
from first-time homebuyers and higher-income consumers; our ability
to generate orders and convert our backlog of orders to home
deliveries and revenues, particularly in key markets in California;
our ability to successfully implement our returns-focused growth
roadmap/strategy and achieve the associated revenue, margin,
profitability, cash flow, community reactivation, land sales,
business growth, asset efficiency, return on invested capital,
return on equity, net debt-to-capital ratio and other financial and
operational targets and objectives; the ability of our homebuyers
to obtain residential mortgage loans and mortgage banking services;
the performance of mortgage lenders to our homebuyers; completing
the wind-down of Home Community Mortgage as planned; Stearns
Lending, LLC’s management of Home Community Mortgage’s assets and
operations; whether we can operate a joint venture with Stearns
Lending, LLC, and the performance of any such mortgage banking
joint venture once operational; information technology failures and
data security breaches; and other events outside of our control.
Please see our periodic reports and other filings with the
Securities and Exchange Commission for a further discussion of
these and other risks and uncertainties applicable to our
business.
KB HOME CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended February 28,
2017 and February 29, 2016
(In Thousands, Except Per Share Amounts –
Unaudited)
Three Months Ended February 28, 2017 February
29, 2016
Total revenues $ 818,596 $ 678,371
Homebuilding: Revenues $ 816,246 $ 675,742 Costs and
expenses (790,969 ) (656,750 ) Operating income 25,277 18,992
Interest income 198 152 Interest expense (6,307 ) (3,697 ) Equity
in income (loss) of unconsolidated joint ventures 731 (603 )
Homebuilding pretax income 19,899 14,844
Financial
services: Revenues 2,350 2,629 Expenses (819 ) (859 ) Equity in
income (loss) of unconsolidated joint ventures 29 (587 )
Financial services pretax income 1,560 1,183
Total
pretax income 21,459 16,027 Income tax expense (7,200 ) (2,900
)
Net income $ 14,259 $ 13,127
Earnings per
share: Basic $ .17 $ .15
Diluted $
.15 $ .14
Weighted average shares outstanding:
Basic 85,122 89,239
Diluted 96,273
99,427
KB HOME CONSOLIDATED
BALANCE SHEETS
(In Thousands – Unaudited)
February 28,2017 November 30,2016
Assets
Homebuilding: Cash and cash equivalents $ 351,880 $ 592,086
Receivables 238,358 231,665 Inventories 3,423,344 3,403,228
Investments in unconsolidated joint ventures 64,916 64,016 Deferred
tax assets, net 731,885 738,985 Other assets 96,679 91,145
4,907,062 5,121,125
Financial services 15,518 10,499
Total assets $ 4,922,580 $ 5,131,624
Liabilities and stockholders’ equity Homebuilding:
Accounts payable $ 178,491 $ 215,331 Accrued expenses and other
liabilities 501,902 550,996 Notes payable 2,504,449
2,640,149 3,184,842 3,406,476
Financial services 1,278 2,003
Stockholders’ equity 1,736,460 1,723,145
Total
liabilities and stockholders’ equity $ 4,922,580 $
5,131,624
KB HOME SUPPLEMENTAL
INFORMATION
For the Three Months Ended February 28,
2017 and February 29, 2016
(In Thousands, Except Average Selling
Price – Unaudited)
Three Months Ended February 28, 2017 February 29,
2016
Homebuilding revenues: Housing $ 810,947 $ 672,646 Land
5,299 3,096 Total $ 816,246 $ 675,742
Homebuilding costs and expenses: Construction
and land costs Housing $ 692,787 $ 564,828 Land 5,293 3,990
Subtotal 698,080 568,818 Selling, general and administrative
expenses 92,889 87,932 Total $ 790,969 $
656,750
Interest expense: Interest
incurred $ 44,394 $ 46,251 Loss on early extinguishment of debt
5,685 — Interest capitalized (43,772 ) (42,554 ) Total $ 6,307
$ 3,697
Other information:
Depreciation and amortization $ 2,467 $ 2,781 Amortization of
previously capitalized interest 39,384 30,682
Average selling price: West Coast $ 587,200 $ 558,800
Southwest 289,000 286,700 Central 275,500 260,200 Southeast 286,400
270,900 Total $ 364,600 $ 344,400
KB HOME SUPPLEMENTAL INFORMATION
For the Three Months Ended February 28,
2017 and February 29, 2016
(Dollars in Thousands – Unaudited)
Three Months Ended February 28, 2017 February
29, 2016
Homes delivered: West Coast 606 508 Southwest 407
350 Central 861 765 Southeast 350 330 Total 2,224
1,953
Net orders: West Coast 826 555 Southwest
456 359 Central 960 901 Southeast 338 457 Total 2,580
2,272
Net order value: West Coast $ 583,503 $
337,611 Southwest 131,731 107,288 Central 274,883 253,215 Southeast
95,305 126,560 Total $ 1,085,422 $ 824,674
February 28, 2017 February 29, 2016 Homes Value Homes
Value
Backlog data: West Coast 1,133 $ 754,511 785 $ 461,738
Southwest 853 241,917 614 174,381 Central 2,078 596,813 1,978
548,985 Southeast 712 200,323 908 248,403
Total 4,776 $ 1,793,564 4,285 $ 1,433,507
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURESFor the Three Months Ended February 28,
2017 and February 29, 2016(In Thousands, Except Percentages –
Unaudited)
This press release contains, and Company management’s discussion
of the results presented in this press release may include,
information about the Company’s adjusted housing gross profit
margin and ratio of net debt to capital, neither of which are
calculated in accordance with generally accepted accounting
principles (“GAAP”). The Company believes these non-GAAP financial
measures are relevant and useful to investors in understanding its
operations and the leverage employed in its operations, and may be
helpful in comparing the Company with other companies in the
homebuilding industry to the extent they provide similar
information. However, because the adjusted housing gross profit
margin and the ratio of net debt to capital are not calculated in
accordance with GAAP, these financial measures may not be
completely comparable to other companies in the homebuilding
industry and, thus, should not be considered in isolation or as an
alternative to operating performance and/or financial measures
prescribed by GAAP. Rather, these non-GAAP financial measures
should be used to supplement their respective most directly
comparable GAAP financial measures in order to provide a greater
understanding of the factors and trends affecting the Company’s
operations.
Adjusted Housing Gross Profit
Margin
The following table reconciles the Company’s housing gross
profit margin calculated in accordance with GAAP to the non-GAAP
financial measure of the Company’s adjusted housing gross profit
margin:
Three Months Ended February 28, 2017 February 29,
2016 Housing revenues $ 810,947 $ 672,646 Housing construction and
land costs (692,787 ) (564,828 ) Housing gross profits 118,160
107,818 Add: Amortization of previously capitalized interest (a)
38,873 30,206 Inventory-related charges (b) 4,008 1,179
Adjusted housing gross profits $ 161,041 $ 139,203
Housing gross profit margin as a percentage of housing
revenues 14.6 % 16.0 % Adjusted housing gross profit margin as a
percentage of housing revenues 19.9 % 20.7 %
(a) Represents the amortization of previously capitalized
interest associated with housing operations.
(b) Represents inventory impairment and land option contract
abandonment charges associated with housing operations.
Adjusted housing gross profit margin is a non-GAAP financial
measure, which the Company calculates by dividing housing revenues
less housing construction and land costs excluding (1) amortization
of previously capitalized interest associated with housing
operations and (2) housing inventory impairment and land option
contract abandonment charges (as applicable) recorded during a
given period, by housing revenues. The most directly comparable
GAAP financial measure is housing gross profit margin. The Company
believes adjusted housing gross profit margin is a relevant and
useful financial measure to investors in evaluating the Company’s
performance as it measures the gross profits the Company generated
specifically on the homes delivered during a given period. This
non-GAAP financial measure isolates the impact that the
amortization of previously capitalized interest associated with
housing operations, and housing inventory impairment and land
option contract abandonment charges, have on housing gross profit
margins, and allows investors to make comparisons with the
Company’s competitors that adjust housing gross profit margins in a
similar manner. The Company also believes investors will find
adjusted housing gross profit margin relevant and useful because it
represents a profitability measure that may be compared to a prior
period without regard to variability of amortization of previously
capitalized interest associated with housing operations, and
housing inventory impairment and land option contract abandonment
charges. This financial measure assists management in making
strategic decisions regarding community location and product mix,
product pricing and construction pace.
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURES(In Thousands, Except Percentages –
Unaudited)
Ratio of Net Debt to Capital
The following table reconciles the
Company’s ratio of debt to capital calculated in accordance with
GAAP to the non-GAAP financial measure of the Company’s ratio of
net debt to capital:
February 28,2017 November 30,2016 Notes payable $
2,504,449 $ 2,640,149 Stockholders’ equity 1,736,460
1,723,145 Total capital $ 4,240,909 $ 4,363,294
Ratio of debt to capital 59.1 % 60.5 % Notes
payable $ 2,504,449 $ 2,640,149 Less: Cash and cash equivalents
(351,880 ) (592,086 ) Net debt 2,152,569 2,048,063 Stockholders’
equity 1,736,460 1,723,145 Total capital $ 3,889,029
$ 3,771,208 Ratio of net debt to capital 55.3 % 54.3
%
The ratio of net debt to capital is a non-GAAP financial
measure, which the Company calculates by dividing notes payable,
net of homebuilding cash and cash equivalents, by capital (notes
payable, net of homebuilding cash and cash equivalents, plus
stockholders’ equity). The most directly comparable GAAP financial
measure is the ratio of debt to capital. The Company believes the
ratio of net debt to capital is a relevant and useful financial
measure to investors in understanding the leverage employed in the
Company’s operations.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170323005437/en/
KB HomeJill Peters, 310-893-7456Investor Relations
Contactjpeters@kbhome.comorSusan Martin, 310-231-4142Media
Contactsmartin@kbhome.com
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