KB Home (KBH, Financial) released its fiscal fourth-quarter 2020 results after the closing bell on Jan. 12. Both earnings and revenue topped analysts' expectations due to robust order numbers.
Earnings highlights
The homebuilder posted earnings of $1.12 per share, down from $1.31 reported in the prior-year quarter. Revenue of $1.19 billion was down 23.4% on a year-over-year basis. Analysts had predicted earnings of 87 cents per share on $1.11 billion in revenue.
Chairman and CEO Jeffrey Mezger commented on the company's performance:
"Housing market conditions continue to be robust, as the pandemic has helped propel demand for homeownership, accentuating all the financial, health, safety and emotional benefits it offers. This fundamental shift has long been anticipated — with pent-up demographic forces, a housing supply shortage, and favorable mortgage interest rates — and COVID-19 has accelerated these dynamics."
Housing details
The company built 2,876 homes during the quarter, down from 3,929 homes last year. The average selling price rose 5% to $413,700. The average community count tumbled 8% to 234.
Net orders went up 42% to 3,937 homes for a total appreciation in value of 50% to $1.58 billion. The backlog stood at 7,810 homes, up 54% year over year. Potential housing revenue arising from backlog amounted to $2.96 billion, up 63%. This is company's highest backlog level in the last 15 years.
"With the substantial increase in our backlog, we enter the new year well positioned to both expand our scale and deliver that growth at superior margins," Mezger said. "Our favorable outlook is supported by the composition of our backlog, a strong line-up of planned community openings, and a leaner, more efficient operation. Most notably, we expect meaningfully higher revenue and earnings in 2021 to drive significant expansion of our return on equity."
The housing gross profit margin jumped 40 basis points to 20%, highlighting the positive impact of lower amortization of previously capitalized interest. This was only partly negated by reduced operating leverage courtesy of lower housing revenue.
The company had a robust balance sheet position with cash and cash equivalents of $681.2 million at quarter's end, up from $453.8 million in the previous year, and total liquidity of $1.47 billion.
Covid-19 impact
Due to the coronavirus pandemic and the resulting lockdowns, the U.S. housing market was rigorously disrupted during the second quarter. Throughout this unprecedented time, KB Home's net orders and backlog were reduced significantly. As the U.S. started gradually lifting lockdowns during the second half of the year, the company's net orders started rising sharply and witnessed a considerable growth in the backlog as well. Low mortgage interest rates boosted housing demand during the period.
Looking ahead
Since the end of the fourth quarter, KB Home said it has experienced growth in its gross and net orders, reflecting strong demand and improvements in housing market conditions. Moreover, cancellations have dropped in the first quarter so far as compared with the prior period.
The company did not provide any guidance figures.
Disclosure: I do not hold any positions in the stocks mentioned.
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