KB Home (KBH) Announces Three-Year Financial Targets; Plans for Sale of 20 Land Parcels in Q4
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KB Home (NYSE: KBH) held its 2016 Investor Conference in Los Angeles yesterday, where management outlined its roadmap for accelerating the Company’s profitable growth, increasing its return on invested capital and achieving its targeted net leverage ratio.
“Our core strategy is to establish a top five position in our served markets by building communities that offer a compelling combination of affordability, choice and personalization,” said Jeffrey Mezger, chairman, president and chief executive officer. “As we grow our business, we intend to remain focused on our current geographic footprint, offering products in desirable locations and at price points that are primarily designed to appeal to first-time and first move-up buyers, which together have represented more than 80% of our deliveries over the past 15 years.”
“As housing market conditions continue to improve, we are seeing demand strengthen among our core customer segments, and we believe we are well positioned to capitalize on this trend,” continued Mezger. Our target is to grow annual deliveries and achieve revenues in excess of $5 billion by 2019. As a result and along with our plans to realize substantial tax cash savings from our deferred tax asset, sell certain land positions and continue to reactivate communities, we are confident that we can internally generate the cash flow needed to support our future growth, increase our return on invested capital and achieve our leverage ratio objective. We have a compelling strategy, and an achievable set of targets with the potential to produce a meaningful increase in long-term stockholder value,” concluded Mezger.
At the Investor Conference, the Company presented financial targets for its 2019 and 2017 fiscal years, as well as an update to its expectations for the 2016 fourth quarter.
The Company’s three-year targets are as follows:
- Housing revenues greater than $5 billion.
- Operating income margin of 8% to 9%.
- Return on invested capital in excess of 10%.
- Return on equity in the low-to-mid double-digit range.
- Net debt-to-capital ratio of 40% to 50%.
The Company’s financial targets for 2017, representing the first milestone toward achieving its three-year targets, are as follows:
- Housing revenues of $3.8 billion to $4.2 billion.
- Average selling price of $370,000 to $385,000.
- Operating income margin of 5.7% to 6.3%.
- Average community count approximately flat relative to 2016.
2016 Fourth Quarter Update
The Company reaffirmed its previously disclosed financial targets for the 2016 fourth quarter. The Company also announced its decision to sell more than 20 land parcels (over 2,000 lots) that no longer fit into its business plans, rather than sell and build homes on the parcels as previously intended. These parcels include land in excess of near-term requirements; land where the Company now believes the necessary incremental investment in development is not justified; land located in areas outside of the Company’s served markets; and land entitled for certain product types that are not aligned with the Company’s primary offerings. The majority of these land parcels are located in the Company’s Southeast region. In light of this decision, the Company provided a range of estimated 2016 fourth quarter inventory-related charges of $30 million to $40 million.
In addition, the Company announced that net orders for the first six weeks of its 2016 fourth quarter increased 14% year over year. The Company noted that net order growth for the full 2016 fourth quarter may vary from its quarter-to-date performance due to, among other factors, its previously stated expectation for average community count to decline by 8% year over year for its 2016 fourth quarter.
Webcast Replay Information
A replay of the Investor Conference webcast and copies of slide presentations are available in the Investor Relations section of the Company’s website at www.kbhome.com. To access the materials, select the 2016 Investor Conference link under the Events and Presentations section. The webcast and slide presentations will be available until November 18, 2016.
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