KB Home (KBH, Financial) released its fiscal second-quarter 2021 results after the closing bell on June 23. While earnings topped analysts' expectations, revenue came in below projections despite robust order numbers.
Earnings highlights
The homebuilder posted earnings of $1.50 per share, up from $0.55 reported in the prior-year quarter. Revenue of $1.44 billion jumped 58% on a year-over-year basis. Analysts had predicted earnings of $1.29 per share on $1.48 billion in revenue.
Chairman and CEO Jeffrey Mezger commented on the company's performance:
“Our second quarter results reflect the sustained strength and health of our business. In particular, our ability to optimize our assets was evident in our gross margin rising above 21%, which drove our operating margin to exceed 11%, both of which represented the best quarterly margins we have generated in many years.
Housing details
The company built 3,504 homes during the quarter, up from 2,499 homes last year. The average selling price rose 13% to $409,800. The average community count was down 17% to 205.
Net orders went up 145% to 4,300 homes for a total appreciation in value of 196% to $2.04 billion. The backlog stood at 10,034 homes, up 98% year over year. Potential housing revenue arising from backlog amounted to $4.29 billion, up 126%. This is the company's highest backlog level in the last 15 years.
“With a backlog value above $4 billion, we are poised to deliver a substantial increase in revenue this year, at solid margins that we anticipate will contribute to a return on equity of roughly 20%," Mezger said. “As we look to 2022, our backlog, together with our expected community count growth, positions our company for another year of healthy expansion.”
The housing gross profit margin jumped 320 basis points to 21.4%, highlighting the positive impact of lower amortization of previously capitalized interest. Increased operating leverage due to higher housing revenue also helped.
KB Homes had cash and cash equivalents of $608.1 million at the quarter's end, down from $681.2 million on Nov. 30, 2020, and total liquidity of $1.40 billion.
Impact of Covid-19
Due to the coronavirus pandemic, the U.S. housing market was rigorously disrupted during the first half of 2020, with a combination of supply issues and the unexpected sharp boost to housing demand. KB Home's net orders and backlog were reduced significantly at the outset but soon started rising sharply. Low interest rates also boosted housing demand during the period.
Looking forward
Since the end of the second 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 third quarter so far as compared with the prior period. However, the company did not provide any guidance figures.
