Revenues Totaled $1.0 Billion; Diluted
Earnings Per Share Grew to $.83 Gross Margin Expanded to
19.9%, Up 140 Basis Points Net Order Value Rose 29%; Backlog
Value Increased 12% to $2.6 Billion
KB Home (NYSE: KBH) today reported results for its third quarter
ended August 31, 2020.
“We produced solid results in our third quarter, moving beyond
the disruption associated with the early stages of the COVID-19
pandemic that we experienced in the spring. While our deliveries
were lower compared to a year ago, our profitability rose
meaningfully, led by a housing gross profit margin of 20.6%,
excluding inventory-related charges, driving a 14% increase in our
diluted earnings per share,” said Jeffrey Mezger, Chairman,
President and Chief Executive Officer.
“Housing market conditions strengthened during the third
quarter, fueled by the combination of historically low mortgage
interest rates, a limited supply of resale inventory and consumers’
desire to own a single-family home,” continued Mezger. “Reflecting
this strength, our net orders expanded 27% year over year, with
growth in each of our four regions. We achieved a monthly
absorption pace that accelerated to 5.9 orders per community, an
increase of 36%, while we also increased prices in most of our
communities. We believe that our Built-to-Order model is a key
factor driving our sales pace, with this quarter’s results
underscoring the robust demand for the choice and personalization
we offer to our homebuyers."
“As we look ahead to 2021, assuming market conditions remain
favorable, we believe we are well positioned to expand our scale,
and, with a leaner and more efficient operation, we anticipate
accelerating our profitable growth next year, as we remain focused
on generating higher returns,” concluded Mezger.
Three Months Ended August 31, 2020
(comparisons on a year-over-year basis)
- Revenues totaled $999.0 million, down 14% from $1.16 billion,
reflecting the impact from the COVID-19 pandemic during the
Company’s 2020 second quarter.
- Homes delivered were 2,545, compared to 3,022.
- Average selling price was $384,700, up from $381,400.
- Homebuilding operating income increased to $88.9 million from
$85.5 million. The homebuilding operating income margin expanded
150 basis points to 8.9%. Excluding inventory-related charges of
$6.9 million in the current quarter and $5.3 million in the
year-earlier quarter, this metric improved 180 basis points to
9.6%.
- The housing gross profit margin expanded 140 basis points to
19.9%. Excluding inventory-related charges, the housing gross
profit margin increased 170 basis points to 20.6%.
- The housing gross profit margin improvement primarily reflected
a mix shift of homes delivered, lower amortization of previously
capitalized interest, workforce realignment and reductions in the
second quarter in response to the significant negative impact from
the pandemic on the Company’s business, and a favorable pricing
environment during the period.
- Adjusted housing gross profit margin, a metric that excludes
inventory-related charges and the amortization of previously
capitalized interest, increased to 23.7% from 22.3%.
- Selling, general and administrative expenses as a percentage of
housing revenues improved slightly to 11.0%, mainly due to the
Company’s targeted actions, including the above-mentioned workforce
reductions, to reduce overhead costs, partly offset by decreased
operating leverage from lower housing revenues.
- The Company’s financial services operations generated pretax
income of $9.7 million, up from $6.6 million, mainly reflecting
higher income from its mortgage banking joint venture, KBHS Home
Loans, LLC (“KBHS”).
- KBHS originated 79% of the residential mortgage loans the
Company’s homebuyers obtained to finance their home purchase,
compared to 72%.
- Total pretax income grew 10% to $101.3 million. As a percentage
of revenues, pretax income increased 220 basis points to 10.1% from
7.9%.
- The Company‘s income tax expense and effective tax rate were
$22.9 million and approximately 23%, respectively. In the
year-earlier quarter, income tax expense was $23.8 million and the
effective tax rate was approximately 26%. The lower effective tax
rate in the current quarter primarily reflected the favorable
impact of federal energy tax credits.
- Net income grew 15% to $78.4 million, and diluted earnings per
share increased 14% to $.83.
Nine Months Ended August 31, 2020
(comparisons on a year-over-year basis)
- Total revenues of $2.99 billion were flat.
- Homes delivered decreased 2% to 7,796.
- Average selling price increased to $379,800.
- Pretax income grew 30% to $238.0 million.
- Net income increased 31% to $190.2 million and diluted earnings
per share rose 30% to $2.02.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- Net orders for the quarter grew 27% to 4,214, the Company’s
highest third-quarter level since 2005, with net order value
increasing by $367.5 million, or 29%, to $1.64 billion. Both net
orders and net order value increased in all of the Company’s four
regions.
- The Company’s net order growth accelerated during the quarter,
with monthly net orders up 11% in June, 23% in July and 50% in
August. The Company’s cancellation rate as a percentage of gross
orders for the quarter improved to 17% from 20%.
- Company-wide, net orders per community averaged 5.9 per month,
compared to 4.3.
- The Company’s ending backlog increased 8% to 6,749 homes.
Ending backlog value grew 12% to $2.57 billion. This marked the
Company’s highest third-quarter backlog, in terms of both homes and
value, since 2007.
- Average community count for the quarter decreased 7% to 238.
Ending community count of 232 was down 9%.
Balance Sheet as of August 31, 2020
(comparisons to November 30, 2019)
- Cash and cash equivalents increased to $722.0 million, compared
to $453.8 million.
- The Company had total liquidity of $1.51 billion, including
cash and cash equivalents and $787.6 million of available capacity
under its unsecured revolving credit facility. There were no cash
borrowings outstanding under the facility. The Company has not
borrowed under the facility in 2020.
- Inventories decreased slightly to $3.67 billion.
- The Company had 60,278 lots owned or under contract, of which
approximately 63% were owned and 37% were under contract.
- The Company’s 38,110 owned lots represented a supply of
approximately 3.3 years, based on homes delivered in the trailing
12 months.
- Notes payable of $1.75 billion were essentially unchanged.
- The Company’s debt to capital ratio of 40.5% improved 180 basis
points. The Company’s net debt to capital ratio improved 660 basis
points to 28.6%.
- The Company’s next scheduled debt maturity is on December 15,
2021, when $450.0 million in aggregate principal amount of its
7.00% senior notes become due.
Company Outlook — COVID-19
Impact
Although housing market conditions in the 2020 third quarter
improved significantly from the prior quarter, the Company’s
deliveries and revenues for the period were tempered primarily by
the negative impact that restrictive public health measures to
combat the outbreak and spread of COVID-19 had on its second
quarter. Since the easing of public health restrictions in its
served markets beginning in May 2020, all of Company’s communities
have been open to walk-in traffic, following appropriate safety
protocols and applicable public health guidelines. The Company also
continues to engage with customers using its robust virtual selling
capability, including enhanced online tools such as virtual home
tours, interactive floor plans, live chats with sales counselors
and online consultations with its design studios. Reflecting the
shift in operating conditions, the Company’s net orders began to
rebound significantly in May following a low point in April, and
the upward trajectory continued into the third quarter and
accelerated as the quarter progressed.
The Company is encouraged by the resilience of the housing
market and the significant increase in demand over the past several
months. Subsequent to the end of the third quarter, demand remains
strong, with the Company’s net orders for the first three weeks of
September 2020 up 32% from the corresponding period of 2019, and
the cancellation rate for the period improving to 12% from 17%.
While the Company limited its land investments during the second
quarter and most of the third quarter to preserve cash and
liquidity due to the uncertainty surrounding the COVID-19 pandemic,
given the sustained strong housing demand, it has resumed land
acquisition and development activities to bolster its lot pipeline
and support community growth in the future. Although the trajectory
and strength of the current recovery remains uncertain, and it
could be slowed or reversed by a number of factors, including a
possible widespread resurgence in COVID-19 infections combined with
the seasonal flu, the Company believes it is well positioned to
operate effectively through the present environment.
Conference Call
The conference call to discuss the Company’s 2020 third quarter
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 kbhome.com.
About KB Home
KB Home (NYSE: KBH) is one of the largest and most recognized
homebuilders in the United States and has been building quality
homes for over 60 years. Today, KB Home operates in 42 markets
across eight states, serving a wide array of buyer groups. What
sets us apart is how we give our customers the ability to
personalize their homes from homesites and floor plans to cabinets
and countertops, at a price that fits their budget. We are the
first builder to make every home we build ENERGY STAR® certified.
In fact, we go beyond the EPA requirements by ensuring every ENERGY
STAR certified KB home has been tested and verified by a
third-party inspector to meet the EPA’s strict certification
standards, which helps lower the cost of ownership and to make our
new homes healthier and more comfortable than new ones without
certification. We also work with our customers every step of the
way, building strong personal relationships so they have a real
partner in the homebuying process, and the experience is as simple
and easy as possible. Learn more about how we build homes built on
relationships by visiting kbhome.com.
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,
generally and during the current recession; 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; the execution of any share
repurchases pursuant to our board of directors’ authorization;
material and trade costs and availability, particularly lumber;
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; any
failure of lawmakers to agree on a budget or appropriation
legislation to fund the federal government’s operations, and
financial markets’ and businesses’ reactions to that failure;
government actions, policies, programs and regulations directed at
or affecting the housing market (including the Coronavirus Aid,
Relief, and Economic Security Act relief provisions for outstanding
mortgage loans, 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, including those resulting from
regulatory guidance and interpretations issued with respect
thereto; changes in U.S. trade policies, including the imposition
of tariffs and duties on homebuilding materials and products, and
related trade disputes with and retaliatory measures taken by other
countries; the adoption of new or amended financial accounting
standards and the guidance and/or interpretations with respect
thereto; the availability and cost of land in desirable areas and
our ability to timely develop acquired land parcels and open new
home communities; 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 and in entering into new
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
business strategies and achieve any associated financial and
operational targets and objectives; income tax expense volatility
associated with stock-based compensation; the ability of our
homebuyers to obtain residential mortgage loans and mortgage
banking services; the performance of mortgage lenders to our
homebuyers; the performance of KBHS, our mortgage banking joint
venture with Stearns Ventures, LLC; information technology failures
and data security breaches; an epidemic or pandemic (such as the
outbreak and worldwide spread of COVID-19), and the control
response measures that international, federal, state and local
governments, agencies, law enforcement and/or health authorities
implement to address it, which may (as with COVID-19) precipitate
or exacerbate one or more of the above-mentioned and/or other
risks, and significantly disrupt or prevent us from operating our
business in the ordinary course for an extended period; a
continuation of widespread protests and civil unrest related to
efforts to institute law enforcement and other social and political
reforms, and the impacts of implementing or failing to implement
any such reforms; 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.
KB HOME
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Three Months and Nine
Months Ended August 31, 2020 and 2019
(In Thousands, Except Per Share
Amounts - Unaudited)
Three Months Ended August 31,
Nine Months Ended August 31,
2020
2019
2020
2019
Total revenues
$
999,013
$
1,160,786
$
2,988,918
$
2,994,072
Homebuilding:
Revenues
$
995,148
$
1,156,855
$
2,977,810
$
2,984,314
Costs and expenses
(906,205)
(1,071,380)
(2,777,083)
(2,815,401)
Operating income
88,943
85,475
200,727
168,913
Interest income
786
201
2,163
1,745
Equity in income (loss) of unconsolidated
joint ventures
1,922
(384)
11,981
(1,159)
Homebuilding pretax income
91,651
85,292
214,871
169,499
Financial services:
Revenues
3,865
3,931
11,108
9,758
Expenses
(1,056)
(1,003)
(2,901)
(3,067)
Equity in income of unconsolidated joint
ventures
6,855
3,716
14,874
7,018
Financial services pretax income
9,664
6,644
23,081
13,709
Total pretax income
101,315
91,936
237,952
183,208
Income tax expense
(22,900)
(23,800)
(47,800)
(37,600)
Net income
$
78,415
$
68,136
$
190,152
$
145,608
Earnings per share:
Basic
$
.86
$
.77
$
2.09
$
1.65
Diluted
$
.83
$
.73
$
2.02
$
1.55
Weighted average shares
outstanding:
Basic
90,535
88,262
90,292
87,630
Diluted
94,105
92,842
93,788
94,032
KB HOME
CONSOLIDATED BALANCE
SHEETS
(In Thousands - Unaudited)
August 31, 2020
November 30, 2019
Assets
Homebuilding:
Cash and cash equivalents
$
722,033
$
453,814
Receivables
269,651
249,055
Inventories
3,671,129
3,704,602
Investments in unconsolidated joint
ventures
48,821
57,038
Property and equipment, net
64,619
65,043
Deferred tax assets, net
241,171
364,493
Other assets
125,242
83,041
5,142,666
4,977,086
Financial services
34,761
38,396
Total assets
$
5,177,427
$
5,015,482
Liabilities and stockholders’
equity
Homebuilding:
Accounts payable
$
231,821
$
262,772
Accrued expenses and other liabilities
630,529
618,783
Notes payable
1,747,704
1,748,747
2,610,054
2,630,302
Financial services
2,065
2,058
Stockholders’ equity
2,565,308
2,383,122
Total liabilities and stockholders’
equity
$
5,177,427
$
5,015,482
KB HOME
SUPPLEMENTAL
INFORMATION
For the Three Months and Nine
Months Ended August 31, 2020 and 2019
(In Thousands, Except Average
Selling Price - Unaudited)
Three Months Ended August 31,
Nine Months Ended August 31,
2020
2019
2020
2019
Homebuilding revenues:
Housing
$
979,113
$
1,152,618
$
2,960,901
$
2,968,588
Land
16,035
4,237
16,909
15,726
Total
$
995,148
$
1,156,855
$
2,977,810
$
2,984,314
Homebuilding costs and
expenses:
Construction and land costs
Housing
$
784,427
$
939,538
$
2,414,059
$
2,443,937
Land
14,068
4,216
14,942
14,416
Subtotal
798,495
943,754
2,429,001
2,458,353
Selling, general and administrative
expenses
107,710
127,626
348,082
357,048
Total
$
906,205
$
1,071,380
$
2,777,083
$
2,815,401
Interest expense:
Interest incurred
$
31,054
$
36,024
$
93,071
$
107,356
Interest capitalized
(31,054)
(36,024)
(93,071)
(107,356)
Total
$
—
$
—
$
—
$
—
Other information:
Amortization of previously capitalized
interest
$
30,628
$
38,558
$
93,949
$
106,859
Depreciation and amortization
7,701
7,948
23,445
23,325
Average selling price:
West Coast
$
605,400
$
588,800
$
596,200
$
588,700
Southwest
330,700
318,400
321,700
323,700
Central
310,000
297,000
300,100
290,200
Southeast
286,500
294,000
290,500
296,400
Total
$
384,700
$
381,400
$
379,800
$
373,800
KB HOME
SUPPLEMENTAL
INFORMATION
For the Three Months and Nine
Months Ended August 31, 2020 and 2019
(Dollars in Thousands -
Unaudited)
Three Months Ended August 31,
Nine Months Ended August 31,
2020
2019
2020
2019
Homes delivered:
West Coast
626
838
2,005
2,015
Southwest
628
566
1,783
1,615
Central
958
1,098
2,881
2,989
Southeast
333
520
1,127
1,323
Total
2,545
3,022
7,796
7,942
Net orders:
West Coast
1,329
957
2,863
2,797
Southwest
857
706
1,927
2,007
Central
1,469
1,132
3,405
3,556
Southeast
559
530
1,272
1,704
Total
4,214
3,325
9,467
10,064
Net order value:
West Coast
$
761,742
$
570,531
$
1,685,094
$
1,655,423
Southwest
285,917
219,930
642,601
632,498
Central
438,697
331,635
1,024,623
1,054,203
Southeast
157,404
154,146
362,540
488,893
Total
$
1,643,760
$
1,276,242
$
3,714,858
$
3,831,017
August 31, 2020
August 31, 2019
Homes
Value
Homes
Value
Backlog data:
West Coast
1,901
$
1,088,096
1,497
$
883,765
Southwest
1,382
458,681
1,318
412,391
Central
2,512
750,831
2,281
674,614
Southeast
954
270,056
1,134
326,027
Total
6,749
$
2,567,664
6,230
$
2,296,797
KB HOME RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES (In Thousands, Except Percentages -
Unaudited)
This press release contains, and Company management’s discussion
of the results presented in this press release may include,
information about the Company’s adjusted housing gross profit
margin and ratio of net debt to capital, neither of which is
calculated in accordance with generally accepted accounting
principles (“GAAP”). The Company believes these non-GAAP financial
measures are relevant and useful to investors in understanding its
operations and the leverage employed in its operations, and may be
helpful in comparing the Company with other companies in the
homebuilding industry to the extent they provide similar
information. However, because they are not calculated in accordance
with GAAP, these non-GAAP financial measures may not be completely
comparable to other companies in the homebuilding industry and,
thus, should not be considered in isolation or as an alternative to
operating performance and/or financial measures prescribed by GAAP.
Rather, these non-GAAP financial measures should be used to
supplement their respective most directly comparable GAAP financial
measures in order to provide a greater understanding of the factors
and trends affecting the Company’s operations.
Adjusted Housing Gross Profit
Margin
The following table reconciles the Company’s housing gross
profit margin calculated in accordance with GAAP to the non-GAAP
financial measure of the Company’s adjusted housing gross profit
margin:
Three Months Ended August 31,
Nine Months Ended August 31,
2020
2019
2020
2019
Housing revenues
$
979,113
$
1,152,618
$
2,960,901
$
2,968,588
Housing construction and land costs
(784,427)
(939,538)
(2,414,059)
(2,443,937)
Housing gross profits
194,686
213,080
546,842
524,651
Add: Inventory-related charges (a)
6,888
5,251
16,939
13,143
Housing gross profits excluding
inventory-related charges
201,574
218,331
563,781
537,794
Add: Amortization of previously
capitalized interest (b)
30,186
38,558
93,507
106,260
Adjusted housing gross profits
$
231,760
$
256,889
$
657,288
$
644,054
Housing gross profit margin
19.9
%
18.5
%
18.5
%
17.7
%
Housing gross profit margin excluding
inventory-related charges
20.6
%
18.9
%
19.0
%
18.1
%
Adjusted housing gross profit margin
23.7
%
22.3
%
22.2
%
21.7
%
(a) Represents inventory impairment and
land option contract abandonment charges associated with housing
operations.
(b) Represents the amortization of
previously capitalized interest associated with housing
operations.
Adjusted housing gross profit margin is a non-GAAP financial
measure, which the Company calculates by dividing housing revenues
less housing construction and land costs excluding (1) housing
inventory impairment and land option contract abandonment charges
(as applicable) recorded during a given period and (2) amortization
of previously capitalized interest associated with housing
operations, by housing revenues. The most directly comparable GAAP
financial measure is housing gross profit margin. The Company
believes adjusted housing gross profit margin is a relevant and
useful financial measure to investors in evaluating the Company’s
performance as it measures the gross profits the Company generated
specifically on the homes delivered during a given period. This
non-GAAP financial measure isolates the impact that housing
inventory impairment and land option contract abandonment charges,
and the amortization of previously capitalized interest associated
with housing operations, have on housing gross profit margins, and
allows investors to make comparisons with the Company’s competitors
that adjust housing gross profit margins in a similar manner. The
Company also believes investors will find adjusted housing gross
profit margin relevant and useful because it represents a
profitability measure that may be compared to a prior period
without regard to variability of housing inventory impairment and
land option contract abandonment charges, and amortization of
previously capitalized interest associated with housing operations.
This financial measure assists management in making strategic
decisions regarding community location and product mix, product
pricing and construction pace.
Ratio of Net Debt to
Capital
The following table reconciles the Company’s ratio of debt to
capital calculated in accordance with GAAP to the non-GAAP
financial measure of the Company’s ratio of net debt to
capital:
August 31, 2020
November 30, 2019
Notes payable
$
1,747,704
$
1,748,747
Stockholders’ equity
2,565,308
2,383,122
Total capital
$
4,313,012
$
4,131,869
Ratio of debt to capital
40.5
%
42.3
%
Notes payable
$
1,747,704
$
1,748,747
Less: Cash and cash equivalents
(722,033)
(453,814)
Net debt
1,025,671
1,294,933
Stockholders’ equity
2,565,308
2,383,122
Total capital
$
3,590,979
$
3,678,055
Ratio of net debt to capital
28.6
%
35.2
%
The ratio of net debt to capital is a non-GAAP financial
measure, which the Company calculates by dividing notes payable,
net of homebuilding cash and cash equivalents, by capital (notes
payable, net of homebuilding cash and cash equivalents, plus
stockholders’ equity). The most directly comparable GAAP financial
measure is the ratio of debt to capital. The Company believes the
ratio of net debt to capital is a relevant and useful financial
measure to investors in understanding the leverage employed in the
Company’s operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200922005311/en/
Jill Peters, Investor Relations Contact (310) 893-7456 or
jpeters@kbhome.com
Cara Kane, Media Contact (321) 299-6844 or ckane@kbhome.com
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