KB Home (KBH) reported weak fourth-quarter fiscal 2013 results, missing the Zacks Consensus Estimate for both earnings and revenues due to weak net orders.
KB Home’s adjusted earnings of 31 cents per share in the fourth quarter improved from the year-ago adjusted earnings of 3 cents per share. However, earnings lagged the Zacks Consensus Estimate of 45 cents by 31%.
Total revenue increased 7% from the year-ago quarter to $618.5 million in the fourth quarter of fiscal 2013. However, revenues missed the Zacks Consensus Estimate of $675 million by approximately 8.4%. We believe that the net order decline and weak business along the West coast took a toll on KB Home’s top and bottom-line results.
Revenues
In the fourth quarter of fiscal 2013, housing revenues increased 7.0% year over year to $614.6 million driven by increased pricing power, which made for the weak order growth.
The number of homes delivered decreased 4% from the year-ago quarter to 2,038 homes due to weak business in the West Coast homebuilding region.
Average selling price (ASP) rose 11% year over year to $301,100, driven by a shift in buyer mix to more experienced buyers who prefer larger/more upgraded homes. Strategic community positioning to higher priced communities also pulled up ASPs. The company’s backlog totaled 2,557 homes as of Nov 30, 2013, flat year over year.
Potential housing revenues from backlog rose 10% to $682.5 million. In the quarter, the company opened 27 communities and closed 23. At the end of the quarter, the company had 190 active communities, up 12% from the prior-year quarter.
Net orders remained flat in the quarter at 1,556 homes as weak order in West Coast region was offset by growth in each of the other homebuilding regions. Weak orders in the West Coast were due to the company’s shift in focus toward coastal submarkets, the sell-out of older communities and delays in new community openings. The value of net orders increased 5% to $481.7 million.
Adjusted homebuilding gross margin improved 470 basis points (bps) in the quarter to 19.8%, driven by price increases and favorable community mix.
The selling, general & administrative (SG&A) expense ratio improved 70 bps year over year to 10.3% in the quarter due to the company’s cost reduction initiatives.
Fiscal 2013 Results
The company reported 34% increase in revenues to $2.10 billion in fiscal 2013. The revenue growth was driven by 14% increase in homes delivered and 18% increase in average selling prices. Despite missing the Zacks Consensus estimate of 61 cents, the company reported earnings of 46 cents per share in fiscal 2013, compared to loss in the prior year. This was the first full year of profitability since 2006.
Another homebuilding company Toll Brothers, Inc. (TOL), which reported in Dec 10, surpassed both revenue and earnings estimates in the fourth quarter of fiscal 2013, attributable to aggressive pricing and increased number of homes delivered, both of which exceeded the company’s guided range by a wide margin.
KB Homes carries a Zacks Rank #3 (Hold). Better-ranked homebuilding companies include Meritage Homes Corporation (MTH) and M/I Homes, Inc. (MHO). Both the companies carry a Zacks Rank #2 (Buy).
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