Fourth Quarter Revenues Up 21% to $1.2
Billion
Net Orders Increase 20% to 2,254; Net Order
Value Up 27% to $856 Million
Backlog Value Increases to $1.5 Billion,
Highest Year-End Level Since 2006
KB Home (NYSE: KBH) today reported results for its fourth
quarter and year ended November 30, 2016.
“We made considerable progress on several fronts in 2016 with
solid operational execution driving year-over-year increases in our
annual deliveries, revenues and earnings,” said Jeffrey Mezger,
chairman, president and chief executive officer. “We finished the
year with strong fourth quarter performance and poised for
long-term success with a roadmap for returns-focused growth, a
refined core business strategy, and specific three-year financial
targets. We also took decisive actions to improve our asset
efficiency, committing to sell certain non-core land assets over
the coming year. While this resulted in inventory-related
impairment charges in the quarter, we intend to productively
redeploy the cash proceeds to deleverage our balance sheet and
invest in our business.”
“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 Mezger. “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.”
Three Months Ended November 30, 2016
(comparisons on a year-over-year basis)
- Total revenues of $1.19 billion
increased 21%, with housing revenues also up 21%.
- Land sale revenues were $3.2 million,
compared to $2.3 million.
- Deliveries grew 19% to 3,060 homes,
with increases in each of the Company’s four regions.
- Average selling price increased 2% to
$387,400.
- 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, the
lowest fourth-quarter ratio in the Company’s history.
- Homebuilding operating income decreased
20% to $56.0 million, reflecting total inventory-related charges of
$36.1 million, compared to $5.1 million.
- Homebuilding operating income margin
was 4.7%. Excluding total inventory-related charges, homebuilding
operating income margin was 7.7%.
- 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
homebuyers.
- The Company 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.
- Pretax income decreased 21% to $55.0
million. Excluding total inventory-related charges, pretax income
increased 21% to $91.1 million.
- Income tax expense of $17.5 million was
favorably impacted by $4.8 million of federal energy tax credits
earned from building energy-efficient homes, and represented an
effective tax rate of 31.8%.
- Net income totaled $37.5 million, or
$.40 per diluted share.
Twelve Months Ended November 30, 2016
(comparisons on a year-over-year basis)
- Total revenues increased 19% to $3.59
billion.
- Land sale revenues totaled $7.4
million, compared to $112.8 million.
- Housing revenues grew 23% to $3.58
billion.
- Deliveries rose 20% to 9,829
homes.
- Average selling price increased 3% to
$363,800.
- Homebuilding 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.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- Net orders for the quarter increased
20% 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%.
- Average community count for the quarter
decreased 8% to 231.
Balance Sheet as of November 30, 2016
(comparisons on a year-over-year basis)
- Cash and cash equivalents increased to
$592.1 million, compared to $559.0 million.
- Inventories were $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 will recognize a charge of approximately $5.4
million in the 2017 first quarter.
Earnings Conference Call
The conference call to discuss the Company’s fourth quarter 2016
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 severe 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; 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
(including our plans to transition out of the Metro Washington,
D.C. area), 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 or any other mortgage banking
services provider, 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 Twelve Months and Three Months Ended November 30, 2016 and
2015 (In Thousands, Except Per Share Amounts)
Twelve Months Ended Three Months Ended
November 30, November 30, 2016 2015 2016
2015
Total revenues $ 3,594,646
$ 3,032,030 $ 1,191,942 $ 985,783
Homebuilding: Revenues $ 3,582,943 $ 3,020,987 $ 1,188,628 $
982,091 Costs and expenses (3,430,542 ) (2,882,366 )
(1,132,634 ) (911,712 ) Operating income 152,401
138,621 55,994 70,379 Interest income 529 458 134 116 Interest
expense (5,900 ) (21,856 ) (233 ) (4,006 ) Equity in loss of
unconsolidated joint ventures (2,181 ) (1,804 )
(217 ) (624 ) Homebuilding pretax income
144,849 115,419 55,678
65,865
Financial services: Revenues 11,703 11,043
3,314 3,692 Expenses (3,817 ) (3,711 ) (1,196 ) (909 ) Equity in
income (loss) of unconsolidated joint ventures (3,420 )
4,292 (2,768 ) 1,269 Financial
services pretax income (loss) 4,466 11,624
(650 ) 4,052
Total pretax income
149,315 127,043 55,028 69,917 Income tax expense (43,700 )
(42,400 ) (17,500 ) (25,900 )
Net
income $ 105,615 $ 84,643 $ 37,528 $
44,017
Earnings per share: Basic $ 1.23
$ .92 $ .44 $ .48
Diluted $ 1.12
$ .85 $ .40 $ .43
Weighted average shares
outstanding: Basic 85,706 92,054
84,961 92,200
Diluted
96,278 102,857 95,744
102,844
KB HOME CONSOLIDATED
BALANCE SHEETS
(In Thousands)
November 30,
November 30, 2016 2015
Assets Homebuilding: Cash and
cash equivalents $ 592,086 $ 559,042 Restricted cash — 9,344
Receivables 231,665 247,998 Inventories 3,403,228 3,313,747
Investments in unconsolidated joint ventures 64,016 71,558 Deferred
tax assets, net 738,985 782,196 Other assets 91,145
88,992 5,121,125 5,072,877
Financial services 10,499
14,028
Total assets $ 5,131,624 $ 5,086,905
Liabilities and stockholders’ equity Homebuilding:
Accounts payable $ 215,331 $ 183,770 Accrued expenses and other
liabilities 550,996 608,730 Notes payable 2,640,149
2,601,754 3,406,476 3,394,254
Financial services 2,003 1,817
Stockholders’ equity 1,723,145 1,690,834
Total liabilities and stockholders’ equity $ 5,131,624 $
5,086,905
KB HOME SUPPLEMENTAL
INFORMATION For the Twelve Months and Three Months Ended
November 30, 2016 and 2015 (In Thousands, Except Average Selling
Price) Twelve Months Ended
Three Months Ended November 30, November 30, 2016
2015 2016 2015
Homebuilding revenues: Housing $ 3,575,548 $ 2,908,236 $
1,185,383 $ 979,841 Land 7,395 112,751
3,245 2,250 Total $ 3,582,943 $
3,020,987 $ 1,188,628 $ 982,091
Homebuilding costs and expenses: Construction and land costs
Housing $ 2,997,073 $ 2,433,683 $ 989,452 $ 811,153 Land
44,028 105,685 33,627
2,239 Subtotal 3,041,101 2,539,368 1,023,079 813,392
Selling, general and administrative expenses 389,441
342,998 109,555 98,320
Total $ 3,430,542 $ 2,882,366 $ 1,132,634 $
911,712
Interest expense: Interest
incurred $ 185,466 $ 186,885 $ 46,472 $ 46,096 Interest capitalized
(179,566 ) (165,029 ) (46,239 ) (42,090
) Total $ 5,900 $ 21,856 $ 233 $ 4,006
Other information: Depreciation and
amortization $ 11,213 $ 11,149 $ 2,782 $ 2,736 Amortization of
previously capitalized interest 161,285
143,255 54,622 43,767
Average selling price: West Coast $ 579,900 $ 587,000
$ 593,400 $ 617,600 Southwest 287,000 284,600 288,600 295,300
Central 270,100 252,200 280,300 269,400 Southeast 281,400
281,900 285,900 291,100
Total $ 363,800 $ 354,800 $ 387,400 $
379,800
KB HOME SUPPLEMENTAL
INFORMATION For the Twelve Months and Three Months Ended
November 30, 2016 and 2015
(Dollars in Thousands)
Twelve Months Ended
Three Months Ended November 30, November 30, 2016
2015 2016 2015
Homes
delivered: West Coast 2,825 2,258 1,026 760 Southwest 1,559
1,311 448 423 Central 3,744 3,183 1,097 971 Southeast 1,701
1,444 489 426 Total 9,829 8,196
3,060 2,580
Net orders: West
Coast 3,000 2,403 675 517 Southwest 1,758 1,592 421 287 Central
3,881 3,536 839 672 Southeast 1,644 1,722 319
406 Total 10,283 9,253 2,254
1,882
Net order value: West Coast $ 1,756,945
$ 1,378,644 $ 410,854 $ 290,469 Southwest 507,870 455,918 122,369
87,524 Central 1,075,586 943,568 230,422 184,976 Southeast
472,754 477,040 92,245 112,871 Total $
3,813,155 $ 3,255,170 $ 855,890 $ 675,840
November 30, 2016 November 30, 2015 Backlog Homes Backlog Value
Backlog Homes Backlog Value
Backlog data: West Coast 913 $
526,840 738 $ 407,972 Southwest 804 227,822 605 167,425 Central
1,979 559,172 1,842 494,836 Southeast 724 205,255
781 211,245 Total 4,420 $ 1,519,089
3,966 $ 1,281,478
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURESFor the Twelve Months and Three Months Ended
November 30, 2016 and 2015(In Thousands, Except
Percentages)
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:
Twelve Months Ended
Three Months Ended November 30, November 30, 2016
2015 2016 2015 Housing revenues
$ 3,575,548 $ 2,908,236 $ 1,185,383 $ 979,841 Housing construction
and land costs (2,997,073 ) (2,433,683 )
(989,452 ) (811,153 ) Housing gross profits 578,475 474,553
195,931 168,688 Add: Amortization of previously capitalized
interest (a) 160,633 126,817 54,452 43,767 Inventory-related
charges (b) 16,152 9,591 5,537
5,075 Adjusted housing gross profits $ 755,260
$ 610,961 $ 255,920 $ 217,530 Housing
gross profit margin as a percentage of housing revenues 16.2
% 16.3 % 16.5 % 17.2 % Adjusted housing gross
profit margin as a percentage of housing revenues 21.1 %
21.0 % 21.6 % 22.2 %
(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 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)
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:
November 30,
November 30, 2016 2015 Notes payable $ 2,640,149 $ 2,601,754
Stockholders’ equity 1,723,145 1,690,834
Total capital $ 4,363,294 $ 4,292,588 Ratio of
debt to capital 60.5 % 60.6 % Notes
payable $ 2,640,149 $ 2,601,754 Less: Cash and cash equivalents and
restricted cash (592,086 ) (568,386 ) Net debt
2,048,063 2,033,368 Stockholders’ equity 1,723,145
1,690,834 Total capital $ 3,771,208 $
3,724,202 Ratio of net debt to capital 54.3 %
54.6 %
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/20170111006026/en/
KB HomeJill Peters, Investor Relations Contact(310)
893-7456jpeters@kbhome.comorSusan Martin, Media Contact(310)
231-4142smartin@kbhome.com
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