Despite costs associated with its pullout from the Washington D.C. market, KB Home (NYSE:KBH) managed to eke out a win late Tuesday with a second-quarter earnings report that beat analyst estimates. Lennar Corp. (NYSE:LEN) scored a similar upset earlier in the day.
KB reported a net profit of $15.6 million, or 17 cents per share, against estimates of 14 cents a share and well ahead of last year's second quarter, which came in at $9.6 million, or 10 cents a share. Both metrics, the company said, were "unfavorably impacted by inventory-related charges" in the fiscal quarter ended May 31.
"We are encouraged by the continued improvement in housing market conditions across the country and by the recent increase in participation from first-time homebuyers, historically our primary customer segment," said Jeffrey Mezger, KB CEO and president. "We believe we are particularly well-positioned to leverage our strength in serving the demand from this demographic with dynamic product offerings. With favorable market trends and our financial and operational progress in the first half of the year, we have positive momentum in our business heading into the remainder of 2016."
Other metrics were up:
- Total revenues rose 30% to $811.1 million.
- Housing revenues increased 33% to $807.4 million.
- Deliveries grew 30% to 2,329 homes, reflecting double-digit increases in all four of the company's regions.
- Average selling price increased 2% to $346,700.
- Housing gross profit margin decreased 50 basis points to 15.5%, reflecting approximately 80 basis points of inventory-related charges.
- Adjusted housing gross profit margin, which excludes the amortization of previously capitalized interest and inventory-related charges, improved 40 basis points to 20.7%.
- Selling, general and administrative expenses improved 140 basis points to 11.6% of housing revenues.
- Home building operating income increased 45% to $25.9 million despite total inventory impairment and land option contract abandonment charges of $11.7 million, of which $6.8 million [was] related to the Company's wind down of its Metro Washington, D.C. operations. Inventory-related charges in the year-earlier quarter totaled $.5 million.
- Home building operating income margin improved 30 basis points to 3.2%. Excluding inventory-related charges, home building operating income margin rose 170 basis points to 4.7%.
- Pretax income increased 96% to $24.8 million.
- Income tax expense of $9.2 million was favorably impacted by $.4 million of federal energy tax credits earned from building energy-efficient homes and represented an effective tax rate of 37.1%.
Backlog and Net Orders (comparisons on a year-over-year basis):
- Ending backlog value grew 14% to $1.83 billion, reflecting increases in all regions.
- Homes in backlog rose 10% to 5,205.
- Net order value for the quarter grew 14% to $1.20 billion.
- Net orders for the quarter increased 8% to 3,249.
- The cancellation rate as a percentage of beginning backlog for the quarter improved to 21% from 25%, and as a percentage of gross orders improved to 21% from 22%.
- Average community count for the quarter decreased 2% to 242.
Balance Sheet (as of May 31, 2016)
- Cash, cash equivalents and restricted cash totaled $278.4 million.
- Inventories totaled $3.53 billion, with investments in land acquisition and development totaling $702.6 million for the six months ended May 31, 2016.
- Lots owned or controlled totaled 47,283, of which 82% were owned.
- There were no cash borrowings outstanding under the unsecured revolving credit facility.
- Average diluted shares outstanding for the quarter were reduced 7% from the year-earlier quarter to 94.7 million, reflecting repurchases of nearly 8.4 million shares of common stock during the 2016 first quarter at a total cost of $85.9 million. No shares were repurchased in the 2016 second quarter.