KB Home (KBH) reported adjusted net earnings per share (excluding income tax benefit) of 3 cents in the fourth quarter of fiscal 2012, lagging the Zacks Consensus Estimate of 6 cents per share. However, the company improved significantly from the year-ago loss of 19 cents per share, adjusted for financial services and loan guaranty gains, as well as an income tax benefit.
Double-digit rise in revenues and increase in average selling price led to the positive earnings in the quarter, after incurring loss in the last few quarters.
Total revenue increased 20% from the year-ago quarter to $578.2 million in the fourth quarter of 2012, driven by an increase in the number of homes delivered and higher average selling price. Total revenue also beat the Zacks Consensus Estimate of $571 million.
Quarter Details
In the fourth quarter of 2012, housing revenue increased 20.7% year over year to $574.4 million. The increase in revenues was attributable to higher deliveries and an increase in average selling price. Financial Services revenue (included in total revenue) was $3.8 million, down 7.3% from the prior-year quarter.
The number of homes delivered increased 6% from the year-ago quarter to 2,122 homes, driven by strong performance in two out of the four homebuilding regions. The number of homes delivered grew 16.6% in West Coast region and 19.4% in Central region.
The average selling price rose 14% year over year to $270,700 with the Southwest region recording the maximum price hike of 22.6%, followed by an increase of 14% in the Southeast region and 13.2% in the West coast region. A better product mix comprising increased closings of higher-priced and larger homes drove the sales price higher.
Net orders grew 4% y/y in the quarter to 1,557 homes. Net order growth was driven by strong performance in the West Coast (up 26%).
The value of net orders, however, grew 25% to $459.3 million, benefiting from average sales price increases. Management is strategically reallocating resources to invest in the preferred markets of the West Coast and Central regions, which have strong growth prospects, thus leading to net order growth.
The company’s backlog totaled 2,577 homes as of November 30, 2012, up 20% from 2,156 homes as of November 30, 2011. Potential housing revenues from backlog rose 35% to $618.6 million from $459.0 million in the year-ago quarter, primarily on account of increases in backlog revenue in all the four operating regions.
At the end of fourth quarter 2012, the company’s community count declined 18% year over year to 191 communities. The decline was due to the company’s realignment to higher margined submarkets.
The company’s homebuilding business posted adjusted gross margin of 15.2% in the quarter, up 10 basis points from the prior-year quarter, driven by strong top-line growth.
Selling, general and administrative expenses were $66.2 million in the fourth quarter, down 12.4% y/y due to cost control initiatives taken by the company. As a percentage of housing revenues, selling, general and administrative expenses improved 440 basis points to 11.5% in the quarter, driven by strong revenue growth.
Fiscal 2012
KB Home reported adjusted net loss per share (excluding an income tax benefit) of 76 cents in fiscal 2012, narrower than the Zacks Consensus Estimate of a loss of 80 cents per share. Double-digit rise in revenues led to the narrower loss
Total revenue increased 19% from the year-ago quarter to $1.56 billion in fiscal 2012, driven by an increase in the number of homes delivered and higher average selling price.
Outlook
A peer of Toll Brothers, Inc., (TOL), KB Home intends to open more than 120 communities in 2013, with more communities being opened in the later half of the year. As such, the community count is expected to increase by at least 15% to 20% by the end of next year. The company expects profitability for fiscal 2013.
With housing market recovery gaining momentum, KB Home believes its strategic initiatives including overhead reduction, margin expansion, and land investments in higher-priced, better-located communities; and increasing backlog will help it achieve profitability in the upcoming quarters. Though we have faith in KB Home’s strategic initiatives, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.
We currently have a Neutral recommendation on KB Home. The stock carries a Zacks #3 Rank (a short-term Hold rating).
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