Net Orders Up 33%; Net Order Value Up 38% to
$1.1 BillionBacklog Value Increases to $1.6 Billion
KB Home (NYSE: KBH), one of the nation’s largest and most
recognized homebuilders, today reported results for its second
quarter ended May 31, 2015. Highlights and developments
include the following:
Three Months Ended May 31,
2015
- Total revenues of $623.0 million grew
10% from $565.0 million in the year-earlier quarter, extending the
Company’s trend of year-over-year revenue increases to 15
consecutive quarters. The current quarter revenue growth was driven
by increases in the Company’s housing and land sale revenues.
- Housing revenues rose 8% to $604.9
million from $559.8 million for the year-earlier quarter,
reflecting expanded delivery volume and a higher overall average
selling price.
- The Company delivered 1,787 homes, up
2% from 1,751 homes in the year-earlier quarter.
- The overall average selling price of
homes delivered advanced 6% to $338,500, compared to $319,700 for
the corresponding period of 2014. Average selling prices increased
in the Company’s West Coast, Central and Southeast regions, while
its Southwest region’s average selling price was essentially
even.
- Land sale revenues increased to $15.9
million from $2.6 million a year ago, reflecting sales in three of
the Company’s four regions.
- Homebuilding operating income totaled
$17.9 million, compared to $34.3 million in the 2014 second
quarter. Housing gross profits of $96.6 million declined $9.1
million from $105.7 million in the year-earlier quarter. Land sales
had minimal impact on operating income for the second quarters of
2015 and 2014.
- The Company’s housing gross profit
margin of 16.0% decreased 290 basis points from 18.9% in the
year-earlier quarter. On a sequential basis, the housing gross
profit margin improved 90 basis points from the first quarter of
2015.
- The year-over-year decline in the
housing gross profit margin was primarily due to higher land and
construction costs, increased pricing pressure in certain markets,
start-up field costs associated with new community openings, and an
increase in the amortization of previously capitalized
interest.
- Excluding the amortization of
previously capitalized interest and land option contract
abandonment charges in each period, which had a combined
year-over-year impact of 60 basis points, the Company’s second
quarter adjusted housing gross profit margin was 20.3% in 2015 and
22.6% in 2014.
- Selling, general and administrative
expenses rose year over year mainly due to higher staffing levels
and community opening-related expenses in connection with the
Company’s community count expansion strategy and to support
delivery growth anticipated for the second half of 2015. As a
percentage of housing revenues, selling, general and administrative
expenses increased slightly to 13.0% from 12.8% for the prior-year
quarter. Compared to the first quarter of 2015, this ratio improved
50 basis points.
- Interest expense decreased to $8.1
million from $8.6 million in the year-earlier quarter, with an
increase in interest incurred, stemming from a higher debt level,
more than offset by a greater amount of interest capitalized due to
an increase in qualifying inventory in the current quarter.
- Financial services operations generated
pretax income of $3.2 million, rising 82% from $1.8 million in the
year-earlier quarter. The current quarter results included $2.0
million of pretax income from Home Community Mortgage, LLC, the
Company’s mortgage banking joint venture with Nationstar Mortgage
LLC, which commenced operations in July 2014.
- Net income totaled $9.6 million, or
$.10 per diluted share, compared to $26.6 million, or $.27 per
diluted share, for the second quarter of 2014.
- Income tax expense increased to $3.1
million from $.3 million in the year-earlier quarter. Income tax
expense for the 2014 second quarter reflected the Company’s full
deferred tax asset valuation allowance, which was substantially
reversed in the fourth quarter of 2014.
- Income tax expense in the current
quarter was reduced by $1.7 million of federal energy tax credits
the Company earned from building high-efficiency homes, resulting
in an effective tax rate of 24.5%.
Six Months Ended May 31,
2015
- Total revenues rose to $1.20 billion,
up 18% from $1.02 billion in the year-earlier period.
- Homes delivered increased 6% to 3,380,
compared to 3,193 homes delivered in the six months ended May 31,
2014.
- The overall average selling price of
$334,200 increased 7% from $313,200 for the year-earlier
period.
- Homebuilding operating income was $32.3
million, compared to $52.0 million in the corresponding period of
2014.
- Net income totaled $17.4 million, or
$.18 per diluted share, compared to $37.2 million, or $.40 per
diluted share for the year-earlier period.
- Income tax expense was $5.8 million
versus $.5 million for the six months ended May 31, 2014, with the
2014 period impacted by the Company’s full deferred tax asset
valuation allowance, which was largely reversed at the end of
2014.
Backlog and Net Orders
- Potential future housing revenues in
backlog grew 57% to $1.61 billion at May 31, 2015, from $1.03
billion at May 31, 2014, reflecting substantial year-over-year
increases in each of the Company’s four regions. These increases
ranged from 38% in its Central region, which mainly consists of the
Company’s operations in Texas, to 199% in its Southwest region.
- The Company’s backlog at May 31,
2015 increased 39% to 4,733 homes, compared to 3,398 homes in
backlog at May 31, 2014.
- The number of homes in backlog and
corresponding backlog value at May 31, 2015 reached their
highest second-quarter levels since 2008 and 2007,
respectively.
- The value of net orders generated in
the current quarter rose 38% to $1.05 billion from $763.2 million
in the year-earlier period, marking the Company’s 13th consecutive
quarter of year-over-year increases.
- Each of the Company’s four regions
generated year-over-year growth in net order value, ranging from
23% in its Central region to 165% in its Southwest region.
- Net orders grew 33% to 3,015 in the
current quarter, compared to 2,269 in the year-earlier quarter,
largely driven by expansion in the Company’s average community
count.
- The cancellation rate as a percentage
of gross orders improved to 22% from 28% in the second quarter of
2014, and as a percentage of beginning backlog was 25% versus 30% a
year ago.
- The Company’s overall average community
count for the second quarter increased 30% to 248 from 191 for the
year-earlier quarter.
- The Company ended the current quarter
with 261 communities open for sales, up 35% from 194 communities a
year ago. On a sequential basis, the current quarter ending
community count increased 11% from the first quarter of 2015.
Balance Sheet
- Cash, cash equivalents and restricted
cash increased to $467.1 million at May 31, 2015, compared to
$383.6 million at November 30, 2014, largely due to proceeds
received from a senior notes offering completed in the 2015 first
quarter, partly offset by cash used in operating activities.
- The Company’s investments in land
acquisition and development totaled $454.7 million for the six
months ended May 31, 2015 and $859.6 million for the corresponding
period of 2014.
- The Company had no cash borrowings
outstanding under its $200 million unsecured revolving credit
facility at May 31, 2015.
- Inventories increased to $3.39 billion
at May 31, 2015 from $3.22 billion at November 30, 2014,
reflecting the Company’s investments in land acquisition and
development during the year.
- At May 31, 2015, the Company maintained
a geographically diverse land pipeline comprised of 49,905 lots,
with 41,191 lots owned and 8,714 lots controlled under land option
contracts.
- Notes payable of $2.82 billion at
May 31, 2015 rose from $2.58 billion at November 30, 2014, due
to the Company’s first quarter underwritten public issuance of $250
million in aggregate principal amount of senior notes.
- Subsequent to the end of the second
quarter, on June 15, 2015, the Company repaid the remaining $199.9
million in aggregate principal amount of its 6 1/4% senior notes at
their maturity.
- The Company’s ratio of debt to capital
was 63.6% as of May 31, 2015, compared to 61.8% as of November
30, 2014. The ratio of net debt to capital was 59.3% at May 31,
2015 and 57.9% at November 30, 2014.
Management Comments
“Our strong net order performance during the spring selling
season underscores the success of our community expansion
initiative and the broad appeal of our products and distinctive
home-buying experience, as well as healthy demand in our served
markets,” said Jeffrey Mezger, president and chief executive
officer of KB Home. “With the positive momentum we have generated
across our business, we ended the second quarter with significantly
higher backlog levels in each of our four regions relative to a
year ago, providing excellent visibility on our deliveries and
revenues for the remainder of the year. We are confident that we
have the strategic drivers in place to produce measurable
year-over-year earnings growth in the second half of 2015 as we
realize higher revenues from our larger operational platform and
anticipate generating further sequential margin improvement from
our recently opened communities and additional scale as the year
progresses.”
Earnings Conference Call
The conference call on the second quarter 2015 earnings will be
broadcast live TODAY at 8:30 a.m. Pacific Daylight Time, 11:30 a.m.
Eastern Daylight Time. To listen, please go to the Investor
Relations section of the Company’s website at www.kbhome.com.
About KB Home
KB Home is one of the largest and most recognized homebuilding
companies in the United States. Since its founding in 1957, the
company has built more than half a million quality homes. KB Home's
unique homebuilding approach lets each buyer customize their new
home from lot location to floor plan and design features. As a
leader in utilizing state-of-the-art sustainable building
practices, all KB homes are highly energy efficient and meet strict
ENERGY STAR® guidelines. This helps to lower monthly utility costs
for homeowners, which the company demonstrates with its proprietary
KB Home Energy Performance Guide® (EPG®). KB Home has been named an
ENERGY STAR Partner of the Year Sustained Excellence Award winner
for five straight years and a WaterSense® Partner of the Year for
four consecutive years. A FORTUNE 1,000 company, Los Angeles-based
KB Home was the first homebuilder listed on the New York Stock
Exchange, and trades under the ticker symbol "KBH." For more
information about KB Home, call 888-KB-HOMES, visit www.kbhome.com, or connect with KB Home on
Facebook.com/KBHome and 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;
adverse market conditions, including an increased supply of unsold
homes, declining home prices and greater foreclosure and short sale
activity, among other things, that could negatively affect our
consolidated financial statements, including due to additional
impairment or land option contract abandonment charges, lower
revenues and operating and other losses; conditions in the capital,
credit and financial markets (including residential mortgage
lending standards, the availability of residential mortgage
financing and mortgage foreclosure rates); material prices and
availability; subcontracted trade labor costs and availability;
changes in interest rates; inflation; our debt level, including our
ratio of debt to capital, and our ability to adjust our debt level,
maturity schedule and structure and to access the equity, credit,
capital or other financial markets or other external financing
sources, including raising capital through the public or private
issuance of common stock, debt or other securities, and/or project
financing, on favorable terms; our compliance with the terms and
covenants of our revolving credit facility; weak or declining
consumer confidence, either generally or specifically with respect
to purchasing homes; competition for home sales from other sellers
of new and resale homes, including lenders and other sellers of
homes obtained through foreclosures or short sales; weather events,
significant natural disasters and other climate and environmental
factors, including the severe prolonged serious 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 credits, tax incentives and/or subsidies for
home purchases, tax deductions for residential mortgage interest
payments and property taxes, tax exemptions for profits on home
sales, programs intended to modify existing mortgage loans and to
prevent mortgage foreclosures 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; decisions
regarding federal fiscal and monetary policies, including those
relating to taxation, government spending, interest rates and
economic stimulus measures; the availability and cost of land in
desirable areas; our warranty claims experience with respect to
homes previously delivered and actual warranty costs incurred,
including our warranty claims and costs experience at certain of
our communities in Florida; 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 with
respect to product, geographic and market positioning (including
our efforts to expand our inventory base/pipeline with desirable
land positions or interests at reasonable cost and to expand our
community count, open additional new home communities for sales,
sell higher-priced homes and more design options, increase the size
and value of our backlog, and our operational and investment
concentration in markets in California), revenue growth, asset
optimization (including by effectively balancing home sales prices
and sales pace in our new home communities), asset activation
and/or monetization, local field management and talent investment,
containing and leveraging overhead costs, gaining share in our
served markets and increasing our housing gross profit margins and
profitability; consumer traffic to our new home communities and
consumer interest in our product designs and offerings,
particularly from higher-income consumers; cancellations and our
ability to realize our backlog by converting net orders to home
deliveries and revenues; our home sales and delivery performance,
particularly in key markets in California; our ability to generate
cash from our operations, enhance our asset efficiency, increase
our operating income margin and/or improve our return on invested
capital; the manner in which our homebuyers are offered and whether
they are able to obtain residential mortgage loans and mortgage
banking services, including from Home Community Mortgage; the
performance of Home Community Mortgage; 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 Six Months and Three Months Ended
May 31, 2015 and 2014
(In Thousands, Except Per Share Amounts —
Unaudited)
Six Months Three Months 2015 2014 2015
2014
Total revenues
$ 1,203,090 $ 1,015,694 $ 622,969 $ 565,007
Homebuilding: Revenues $ 1,198,692 $ 1,010,663 $
620,804 $ 562,396 Costs and expenses (1,166,432 ) (958,652 )
(602,942 ) (528,104 ) Operating income 32,260 52,011 17,862 34,292
Interest income 255 283 152 115 Interest expense (13,456 ) (19,834
) (8,118 ) (8,558 ) Equity in income (loss) of unconsolidated joint
ventures (758 ) 1,912 (411 ) (678 ) Homebuilding pretax
income 18,301 34,372 9,485 25,171
Financial services: Revenues 4,398 5,031 2,165 2,611
Expenses (1,892 ) (1,704 ) (928 ) (852 ) Equity in income (loss) of
unconsolidated joint ventures 2,365 (12 ) 1,951 (6 )
Financial services pretax income 4,871 3,315 3,188
1,753
Total pretax income 23,172 37,687 12,673
26,924 Income tax expense (5,800 ) (500 ) (3,100 ) (300 )
Net
income $ 17,372 $ 37,187 $ 9,573 $ 26,624
Earnings per share: Basic $ .19 $ .43
$ .10 $ .30
Diluted $ .18 $ .40
$ .10 $ .27
Weighted average shares
outstanding: Basic 91,974 86,668 91,995
89,529
Diluted 101,470 96,759
101,544 99,508
KB HOME CONSOLIDATED
BALANCE SHEETS
(In Thousands — Unaudited)
May 31,2015
November 30,2014
Assets Homebuilding: Cash and cash equivalents $
439,920 $ 356,366 Restricted cash 27,213 27,235 Receivables 151,578
125,488 Inventories 3,393,672 3,218,387 Investments in
unconsolidated joint ventures 77,935 79,441 Deferred tax assets,
net 819,532 825,232 Other assets 117,745 114,915 5,027,595
4,747,064
Financial services 11,465 10,486
Total
assets $ 5,039,060 $ 4,757,550
Liabilities and
stockholders’ equity Homebuilding: Accounts payable $
164,614 $ 172,716 Accrued expenses and other liabilities 437,115
409,882 Notes payable 2,819,510 2,576,525 3,421,239
3,159,123
Financial services 1,985 2,517
Stockholders’
equity 1,615,836 1,595,910
Total liabilities and
stockholders’ equity $ 5,039,060 $ 4,757,550
KB HOME SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended
May 31, 2015 and 2014
(In Thousands, Except Average Selling
Price — Unaudited)
Six Months Three Months 2015 2014 2015
2014
Homebuilding revenues: Housing $ 1,129,762 $ 999,942 $
604,921 $ 559,815 Land 68,930 10,721 15,883
2,581 Total $ 1,198,692 $ 1,010,663 $ 620,804
$ 562,396 Six Months Three Months 2015 2014
2015 2014
Homebuilding costs and expenses: Construction and
land costs Housing $ 953,659 $ 816,208 $ 508,276 $ 454,102 Land
63,169 9,626 16,134 2,458 Subtotal
1,016,828 825,834 524,410 456,560 Selling, general and
administrative expenses 149,604 132,818 78,532
71,544 Total $ 1,166,432 $ 958,652 $ 602,942
$ 528,104 Six Months Three Months 2015 2014
2015 2014
Interest expense: Interest incurred $ 94,202 $
82,438 $ 49,199 $ 43,158 Interest capitalized (80,746 ) (62,604 )
(41,081 ) (34,600 ) Total $ 13,456 $ 19,834 $ 8,118
$ 8,558 Six Months Three Months 2015 2014 2015
2014
Other information: Depreciation and amortization $
5,560 $ 4,386 $ 2,835 $ 2,319 Amortization of previously
capitalized interest 47,736 37,702 25,443
20,217 Six Months Three Months 2015 2014 2015 2014
Average selling price: West Coast $ 565,500 $ 532,600 $
579,000 $ 537,900 Southwest 275,400 281,200 275,800 276,500 Central
237,900 216,900 237,800 222,000 Southeast 271,800 252,500
278,800 248,700 Total $ 334,200 $
313,200 $ 338,500 $ 319,700
KB
HOME SUPPLEMENTAL INFORMATION
For the Six Months and Three Months Ended
May 31, 2015 and 2014
(Dollars in Thousands — Unaudited)
Six Months Three Months 2015 2014 2015
2014
Homes delivered: West Coast 873 830 459 484 Southwest
516 336 279 175 Central 1,390 1,360 737 765 Southeast 601
667 312 327 Total 3,380 3,193 1,787
1,751 Six Months Three Months 2015 2014 2015 2014
Net orders: West Coast 1,322 1,089 770 583 Southwest 921 392
532 211 Central 2,046 1,842 1,176 1,085 Southeast 915 711
537 390 Total 5,204 4,034 3,015
2,269 Six Months Three Months 2015 2014 2015 2014
Net
order value: West Coast $ 756,311 $ 643,954 $ 438,754 $ 344,671
Southwest 258,213 104,900 149,555 56,512 Central 535,424 419,354
308,381 250,381 Southeast 256,094 195,120 156,176
111,592 Total $ 1,806,042 $ 1,363,328 $
1,052,866 $ 763,156 May 31, 2015 May 31, 2014 Backlog
Homes Backlog Value Backlog Homes Backlog Value
Backlog
data: West Coast 1,042 $ 617,354 679 $ 389,402 Southwest 729
200,697 244 67,060 Central 2,145 558,681 1,830 405,850 Southeast
817 234,091 645 163,565 Total 4,733 $
1,610,823 3,398 $ 1,025,877
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURESFor the Six Months and Three Months Ended
May 31, 2015 and 2014(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, both of which are not
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, therefore, 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:
Six Months Three Months 2015 2014 2015
2014 Housing revenues $ 1,129,762 $ 999,942 $ 604,921 $ 559,815
Housing construction and land costs (953,659 ) (816,208 ) (508,276
) (454,102 ) Housing gross profits 176,103 183,734 96,645 105,713
Add: Amortization of previously capitalized interest 47,736 37,702
25,443 20,217 Land option contract abandonment charges 984
790 536 357 Adjusted housing gross profits $
224,823 $ 222,226 $ 122,624 $ 126,287
Housing gross profit margin as a percentage of housing revenues
15.6 % 18.4 % 16.0 % 18.9 % Adjusted housing gross profit margin as
a percentage of housing revenues 19.9 % 22.2 % 20.3 % 22.6 %
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 amortization of
previously capitalized interest and land option contract
abandonment charges 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 and land option contract abandonments 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 the amortization of
previously capitalized interest and land option contract
abandonment charges. This financial measure assists management in
making strategic decisions regarding 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:
May 31, November 30, 2015 2014 Notes payable $
2,819,510 $ 2,576,525 Stockholders’ equity 1,615,836
1,595,910 Total capital $ 4,435,346 $ 4,172,435
Ratio of debt to capital 63.6 % 61.8 % Notes payable
$ 2,819,510 $ 2,576,525 Less: Cash and cash equivalents and
restricted cash (467,133 ) (383,601 ) Net debt 2,352,377 2,192,924
Stockholders’ equity 1,615,836 1,595,910 Total
capital $ 3,968,213 $ 3,788,834 Ratio of net debt to
capital 59.3 % 57.9 %
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 and restricted cash,
by capital (notes payable, net of homebuilding cash and cash
equivalents and restricted cash, 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/20150619005118/en/
KB HomeKatoiya Marshall, Investor Relations Contact(310)
893-7446kmarshall@kbhome.comorSusan Martin, Media Contact(310)
231-4142smartin@kbhome.com
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