KB Home (KBH, Financial), one of the largest and most recognized homebuilders in the U.S., reported strong first-quarter results. It boasts of strong financial and operational performance in the first quarter. It is witnessing double digit year-over-year revenues and net orders. The total revenues increased by 21% during the quarter. It has increased its housing revenue guidance for 2017 by 12% to 20%.
First-quarter performance
Total revenues during the quarter were $818.6 million (which marked an increase of 21% from $678 million in the prior-year quarter).
Deliveries increased by 14% and totaled at 2,224 homes.
Average selling price increased by 6% and was $364,600.
Homebuilding operating income increased by 33% and was $25.3 million.
Homebuilding operating income margin increased by 30 basis points and was 3.1%.
Housing gross profit margin decreased by 140 basis points and was 14.6%.
Selling, general and administrative expenses improved by 160 basis points and was 11.5% (which was 13.1% of housing revenues in the prior-year quarter).
Interest expense during the quarter was $6.3 million.
Pretax income increased by 34% and was $21.5 million.
Income tax expense during the quarter was $7.2 million (which was $2.9 million in the prior-year quarter).
Net income increased during the quarter was $14.3 million, or 15 cents per diluted share (which was $13.1 million or 14 cents per diluted share in the prior-year quarter).
Net orders during the quarter increased by 14% and were 2,580.
Net order value increased by 32% and was $1.09 billion.
Homes in backlog increased by 11% and were 4,776. Ending backlog value increased by 25% and was $1.79 billion (which marked the company's highest first quarter backlog value since 2007).
The company had cash and cash equivalents of $351.9 million.
Inventories were $3.42 billion,
The ratio of debt to capital was 59.1%, and the ratio of net debt to capital was 55.3%.
Dividend
The company declared a quarterly cash dividend of 2.5 cents per share on the company's common stock, payable on May 18 to stockholders of record on May 4. (Source: Company’s web site)
Focus
- Expanding the scale of the business within the current geographic footprint.
- Increasing operating income margin.
- Generating cash from operations.
- To support a balanced approach to future growth.
- Reduce debt.
- Improving leverage ratio.
Conclusion
Being an industry leader in innovative and highly energy- and water-efficient new homes, the company boasts of building nearly 600,000 homes for families from coast to coast. The buyer gets to choose the location, floor plan, décor choices. It provides homes with the right combination of affordability and choice.
By the end of 2019, the company expects to rake in housing revenues greater than $5 billion, push the operating income margin by 8% to 9%. While improving profitability and internal cash flows, the company plans to propel further growth. It is planning to establish a top five position in the served markets. The home construction market at the moment looks positive as the homebuilders witness increased demand and looser credit.
It is focusing on the first-time buyers since they accounted for nearly 60% of its demand in the last 10 years. With a favorable housing environment, the company is successfully executing its core business strategy. It is trying to capitalize on its largest market California. With a returns-focused growth roadmap, the company is aiming for a better future. It had a successful start to 2017 and with the continuation of the present momentum, adding this company may reap shareholder returns.
Disclosure: I do not hold any position in the company.
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