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KB Home (NYSE: $KBH) Reports 2017 Second Quarter Results

Revenues Up 24% to $1.0 Billion; Diluted Earnings Per Share Rise 94% to $.33

Net Order Value Increases 15% to $1.4 Billion; Backlog Value Grows 19% to $2.2 Billion

 

LOS ANGELES - June 28, 2017 (Investorideas.com Newswire) KB Home (NYSE: KBH) reported results for its second quarter ended May 31, 2017.

"Our strong second quarter performance, particularly our 24% revenue growth, reflects our ongoing efforts to increase the scale of our business and continue the steady operational execution that are driving improvements in our profits, returns and other financial metrics," said Jeffrey Mezger, chairman, president and chief executive officer. "Specifically, we produced measurable expansion of our operating income margin which, combined with our backlog growing to $2.2 billion, positions us for continued meaningful improvement in our results. Looking forward, we remain committed to delivering value to our customers and stockholders and, based on the advancements we have made in the first half of the year, as well as our positive outlook, we are raising our 2017 full-year financial targets."

"The housing market recovery continues on a steady path, supported by favorable industry fundamentals," said Mezger. "Recent improvements in consumer sentiment and employment, combined with relatively low mortgage interest rates, are signaling further strength in the demand for housing. At the same time, the supply of available homes in many areas across the country remains insufficient to satisfy current needs. Given these dynamics in most of our served markets, and our present backlog level, we believe we are well positioned for continued growth with our strong product offerings, compelling customer value proposition and desirable community locations."

Three Months Ended May 31, 2017 (comparisons on a year-over-year basis)

  • Total revenues grew 24% to $1.00 billion.
  • Deliveries rose 11% to 2,580 homes, with double-digit increases in three of the Company's four regions.
  • Average selling price increased 11% to $385,900.
  • Homebuilding operating income rose 91% to $49.6 million. This included inventory-related charges of $6.0 million, compared to $11.7 million in the prior year. ◦ Homebuilding operating income margin increased 180 basis points to 5.0%. Excluding inventory-related charges, homebuilding operating income margin improved 90 basis points to 5.6%. ◦ Housing gross profits increased 23% to $153.3 million, and the related housing gross profit margin was 15.4%. ◦ Housing gross profit margin excluding inventory-related charges was 16.0%, representing a year-over-year decrease of 30 basis points.
    • Adjusted housing gross profit margin, a metric that excludes the amortization of previously capitalized interest and inventory-related charges, increased 30 basis points to 21.0%.
    • Selling, general and administrative expenses improved 120 basis points to 10.4% of housing revenues from 11.6%, marking a second quarter record for the Company.
    • Land sales generated profits of $.2 million, compared to losses of $5.4 million that mainly resulted from land sale impairments associated with the wind down of the Company's Metro Washington, D.C. operations in 2016.
  • All interest incurred was capitalized, which resulted in no interest expense, compared to $2.0 million of interest expense.
  • Financial services pretax income rose to $2.8 million, up from $1.5 million, mainly due to income from the Company's recently formed mortgage banking joint venture with Stearns Lending, LLC, which was operational in all of the Company's served markets outside of California as of May 31, 2017. The joint venture, KBHS Home Loans, LLC, became operational in California earlier this month.
  • Pretax income increased 110% to $52.0 million. Excluding inventory-related charges, pretax income grew 59% to $58.0 million.
  • Income tax expense was $20.2 million, and represented an effective tax rate of 38.9%, compared to 37.1%.
  • Net income more than doubled to $31.8 million, or $.33 per diluted share.

Six Months Ended May 31, 2017 (comparisons on a year-over-year basis)

  • Total revenues increased 22% to $1.82 billion.
  • Deliveries grew 12% to 4,804 homes.
  • Average selling price advanced 9% to $376,100.
  • Homebuilding operating income increased 67% to $74.8 million. ◦ Inventory-related charges totaled $10.0 million, compared to $13.7 million.
  • Net income rose 60% to $46.0 million, and earnings per diluted share advanced 58% to $.49 from $.31.

Backlog and Net Orders (comparisons on a year-over-year basis)

  • Net order value grew 15% to $1.38 billion on a 5% increase in net orders to 3,416, primarily reflecting strength in the Company's West Coast and Southwest regions. ◦ In the West Coast region, net order value increased 23%; in the Southwest region, net order value advanced 19%.
    • Company-wide, net orders per community averaged 4.8 per month, up 7%.
  • Ending backlog value grew 19% to $2.18 billion, with homes in backlog up 8% to 5,612 and the average selling price of those homes rising 11%.
  • The cancellation rate as a percentage of beginning backlog for the quarter improved to 19% from 21%, and as a percentage of gross orders remained steady at 21%.
  • Average community count for the quarter decreased 2% to 238, reflecting a decrease in the Company's Southeast region that was largely offset by increases in its other three regions. Ending community count was down 2% to 236.

Balance Sheet as of May 31, 2017 (comparisons to November 30, 2016)

  • The Company had total liquidity of $591.2 million, including cash and cash equivalents of $348.6 million and availability under its unsecured revolving credit facility.
    • There were no cash borrowings outstanding under the Company's unsecured revolving credit facility.
  • Inventories increased to $3.49 billion, with investments in land acquisition and development totaling $706.6 million for the six months ended May 31, 2017.
  • Lots owned or controlled aggregated to 45,085, with 80% owned.
  • Notes payable decreased to $2.51 billion from $2.64 billion, primarily due to the early redemption of $100 million of senior notes in the 2017 first quarter using internally generated cash.
  • The ratio of debt to capital improved to 58.6%, and the ratio of net debt to capital was 54.9%.

Earnings Conference Call

The conference call to discuss the Company's second quarter 2017 earnings will be broadcast live TODAY at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time. To listen, please go to the Investor Relations section of the Company's website at www.kbhome.com.

About KB Home

KB Home (NYSE: KBH) is one of the largest and most recognized homebuilders in the United States and an industry leader in sustainability, building innovative and highly energy- and water-efficient new homes. Founded in 1957 and the first homebuilder listed on the New York Stock Exchange, the Company has built nearly 600,000 homes for families from coast to coast. Distinguished by its personalized homebuilding approach, KB Home lets each buyer choose their lot location, floor plan, décor choices, design features and other special touches that matter most to them. To learn more about KB Home, call 888-KB-HOMES, visit www.kbhome.com or connect on Facebook.com/KBHome or Twitter.com/KBHome.

Forward-Looking and Cautionary Statements

Certain matters discussed in this press release, including any statements that are predictive in nature or concern future market and economic conditions, business and prospects, our future financial and operational performance, or our future actions and their expected results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and projections about future events and are not guarantees of future performance. We do not have a specific policy or intent of updating or revising forward-looking statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to the following: general economic, employment and business conditions; population growth, household formations and demographic trends; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; material and trade costs and availability; changes in interest rates; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; our compliance with the terms of our revolving credit facility; volatility in the market price of our common stock; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors, including the prolonged drought and related water-constrained conditions in the southwest United States and California; government actions, policies, programs and regulations directed at or affecting the housing market (including the Dodd-Frank Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; changes in existing tax laws or enacted corporate income tax rates; the availability and cost of land in desirable areas; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; our ability to use/realize the net deferred tax assets we have generated; our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets; our operational and investment concentration in markets in California; consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; our ability to successfully implement our returns-focused growth plan and achieve the associated revenue, margin, profitability, cash flow, community reactivation, land sales, business growth, asset efficiency, return on invested capital, return on equity, net debt-to-capital ratio and other financial and operational targets and objectives; the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services; the performance of mortgage lenders to our homebuyers; completing the wind down of Home Community Mortgage as planned; the performance of KBHS Home Loans, LLC, our mortgage banking joint venture with Stearns Lending, LLC; information technology failures and data security breaches; and other events outside of our control. Please see our periodic reports and other filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our business.


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