Shares of KB Home KBH gained more than 7% during afterhours trading on Mar 23 after this California-based homebuilding company reported stellar first-quarter 2016 results.
The company’s quarterly results were marked by better-than-expected revenues driven by strong housing demand and solid traffic.
Quarterly adjusted earnings of 14 cents per share surpassed the Zacks Consensus Estimate of 11 cents by 27.3%. The bottom line also surged 100% from adjusted earnings of 7 cents reported in the prior-year quarter.
Total revenue of $678.4 million in first-quarter 2016 beat the Zacks Consensus Estimate of $633 million by 7.2%. Revenues also surpassed the company’s projected range of $600–$660 million and soared 17% year over year driven by double-digit growth in the number of homes delivered and a higher-than expected increase in average selling prices of homes.
Quarter in Details
In the reported quarter, homebuilding revenues soared 16.9% year over year to $675.7 million driven by an increase in average selling prices (ASP) and the number of homes delivered.
Housing revenues of $672.6 million surged 28% from the year-ago period.
Net orders rose 4% to 2,272 homes driven by a higher average community count and demand growth in the housing markets served by KB Home. Value of net orders climbed 9% to $824.7 million. At the end of the quarter, average community count was 244, up 6% year over year.
Number of homes delivered jumped 23% to 1,953 homes. ASP of homes delivered rose 5% to $344,400, exceeding management’s expectation of $340,000. Despite headwinds in the form of labor constraints and new trade regulations, all four regions reported double-digit growth in the number of homes delivered and an increase in ASP.
The company’s backlog totaled 4,285 homes, as of Feb 29, 2016, up 22% year over year. Potential housing revenues from backlog increased 29% to $1.43 billion driven by higher backlog and increased pricing.
Adjusted homebuilding gross margin expanded 120 basis points (bps) year over year to 20.7%. Adjusted homebuilding gross margin was adjusted for amortization expenses and inventory related charges. Adjusted homebuilding gross margin rose year over year.
As a percentage of housing revenues, selling, general and administrative expenses (SG&A) increased 40 bps to 13.1%.
Second-Quarter 2016 Outlook
KB Home experienced solid traffic levels and encouraging demand trends in the early spring selling season. Going forward, management expects this trend to continue.
KB Home expects housing revenue to range between $710 million and $770 million driven by robust growth in the number of homes delivered and an increase in ASP to $360,000. On a year-over-year basis, ASP is anticipated to rise 6%. Gross margin is predicted to be sequentially flat. Average community count should also remain unchanged.
Fiscal 2016 Outlook
KB Home continues to expect housing revenues in the range of $3.35 billion to $3.65 billion, up from the 2015 levels. ASP is projected to increase 6–8%. Assuming no further inventory impairment or land option contract abandonment charges, full-year housing gross margin is still anticipated to be over 17%. Gross margin is envisioned to gain traction in the second half of the year as significant home deliveries from the high-margin communities are expected during the third and fourth quarters. The average community count is expected to be flat in 2016.
KB Home carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the construction sector may consider Hovnanian Enterprises Inc. HOV, NVR, Inc. NVR and PulteGroup, Inc. PHM. All three companies have a Zacks Rank #2 (Buy).
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