KB Home (KBH) Tops Q4 EPS by 2c, Revenues Miss

January 9, 2020 4:12 PM EST
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Price: $43.23 --0%

EPS Growth %: +138.2%

Financial Fact:
Interest expense: 0

Today's EPS Names:
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KB Home (NYSE: KBH) reported Q4 EPS of $1.31, $0.02 better than the analyst estimate of $1.29. Revenue for the quarter came in at $1.56 billion versus the consensus estimate of $1.61 billion.

Three Months Ended November 30, 2019 (comparisons on a year-over-year basis)

  • Revenues grew 16% to $1.56 billion.
  • Homes delivered increased 16% to 3,929.
  • Average selling price of $392,500 declined slightly.
  • Homebuilding operating income increased 33% to $162.5 million. Homebuilding operating income margin was 10.5%, up 140 basis points. Excluding inventory-related charges of $4.1 million in the quarter and $9.1 million in the year-earlier quarter, this metric was 10.7%, compared to 9.7%.
    • Housing gross profit margin improved 150 basis points to 19.6%. Excluding inventory-related charges, housing gross profit margin increased to 19.9% from 18.7%.
      • The housing gross profit margin improvement primarily reflected the favorable impacts of lower amortization of previously capitalized interest and the Company’s adoption of a new accounting standard (ASC 606) in fiscal year 2019, which were partly offset by a mix shift of homes delivered from certain West Coast region communities with relatively high average selling prices and housing gross profit margins.
    • Selling, general and administrative expenses as a percentage of housing revenues rose 10 basis points to 9.1%, with the impact of the Company’s adoption of ASC 606 partly offset by improved operating leverage from higher housing revenues.
    • As a result of its adoption of ASC 606, the Company changed the classification and timing of recognition of certain model complex costs. In the quarter, these changes favorably impacted the Company’s housing gross profit margin by approximately 70 basis points and negatively impacted its selling, general and administrative expense ratio by approximately 60 basis points.
  • The Company's financial services operations generated pretax income of $9.3 million, up from $6.5 million, mainly due to an increase in income from its mortgage banking joint venture, KBHS Home Loans, LLC (KBHS).
    • KBHS originated 74% of the residential mortgage loans the Company’s homebuyers obtained to finance their home purchase, compared to 62%.
  • Total pretax income grew 28% to $165.0 million, which included a $6.8 million charge for the early extinguishment of debt further described below. Excluding this charge, the Company’s pretax income was $171.8 million, up 33% year over year.
  • The Company’s income tax expense was $41.8 million, compared to $32.1 million. The Company’s effective tax rate was approximately 25% in each of these periods.
  • Net income increased 27% to $123.2 million, and diluted earnings per share increased 36% to $1.31.

“The fourth quarter marked an excellent finish to fiscal 2019, with particular strength in two key metrics – net order growth and housing gross profit margin,” said Jeffrey Mezger, Chairman, President and Chief Executive Officer. “Our net orders advanced 38% year over year, reflecting strong demand for our built-to-order product at affordable price points, together with limited inventory in our served markets. This substantial growth was driven by an increase in our community absorption pace to 3.7 net orders per month, our highest fourth quarter pace in many years, together with a 9% rise in our community count. Alongside our solid net orders was a robust gross margin, which expanded 120 basis points year over year, coming in just shy of 20%. This result was fueled, in part, by a continued reduction in our interest amortization – a significant achievement from executing on our Returns-Focused Growth Plan.”

“With the conclusion of the third year of this Plan, our 2019 results reflect incredibly strong progress relative to 2016 when we launched the Plan and set the stage for the new year. We have begun 2020 on sound footing, with a 26% year-over-year increase in our backlog value to $1.8 billion, and the composition of both our backlog and community portfolio reflecting higher margins. As such, we believe we are well positioned to further expand our profitability this year and meaningfully grow our return on equity.”

For earnings history and earnings-related data on KB Home (KBH) click here.

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