Diluted Earnings Per Share Rises 83% to
$.42
Net Orders Increase 16% to 2,508; Net Order
Value Up 20% to $930 Million
KB Home (NYSE: KBH) today reported results for its third quarter
ended August 31, 2016.
“We are very pleased with our third quarter results, as we
continued our trajectory of solid earnings performance for the
year,” said Jeffrey Mezger, chairman, president and chief executive
officer. “Our execution on our core strategies was the primary
catalyst for our double-digit growth in deliveries and housing
revenues, and our significantly improved operating income margin,
all of which helped drive an 83% increase in earnings per share.
Moving forward, we intend to maintain our balanced approach
centered on expanding our revenues and operating income margin,
while sharpening our focus on increasing our asset efficiency in
order to generate higher returns on invested capital.”
“Housing market conditions remain healthy, with positive
employment, higher household income and economic trends supporting
steady consumer demand amid constrained supply,” said Mezger. “In
this environment, we believe we have the strategies in place to
strengthen and leverage our growth platform to expand our business
and increase market share across our current geographic
footprint.”
Three Months Ended August 31, 2016
(comparisons on a year-over-year basis)
- Total revenues of $913.3 million
increased 8%, with housing revenues up 14%.
- There were no revenues from land sales,
compared to $41.6 million.
- Deliveries grew 11% to 2,487 homes,
reflecting double-digit increases in the Company’s West Coast and
Central regions.
- Average selling price increased 2% to
$365,900.
- Housing gross profit margin increased
20 basis points to 16.4%.
- Excluding inventory-related charges of
$3.1 million, housing gross profit margin rose to 16.8%.
- Adjusted housing gross profit margin,
which excludes the amortization of previously capitalized interest
and inventory-related charges, improved 10 basis points to
21.2%.
- Selling, general and administrative
expenses improved 110 basis points to 10.8% of housing
revenues.
- Homebuilding operating income increased
43% to $51.5 million.
- Homebuilding operating income margin
improved 140 basis points to 5.7%. Excluding inventory-related
charges and prior year land sale results, homebuilding operating
income margin rose 120 basis points to 6.0%.
- All interest incurred was capitalized,
resulting in no interest expense as compared to $4.4 million of
interest expense.
- Financial services pretax income
decreased 11% to $2.4 million.
- The Company and Nationstar Mortgage LLC
have begun the process of winding down their mortgage banking joint
venture, Home Community Mortgage, LLC, and transferring Home
Community Mortgage’s assets and operations to Stearns Lending, LLC.
Currently, Stearns Lending is offering mortgage banking services to
the Company’s homebuyers, and the Company and Stearns Lending are
working to establish a new relationship.
- Pretax income increased 57% to $53.5
million.
- Income tax expense of $14.1 million was
favorably impacted by $6.7 million of federal energy tax credits
earned from building energy-efficient homes and represented an
effective tax rate of 26.4%.
- Income tax expense for the three months
ended August 31, 2015 included the favorable impact of $2.5
million of federal energy tax credits, which resulted in an
effective income tax rate of 31.5%.
- Net income rose 69% to $39.4 million
and earnings per diluted share increased 83% to $.42.
Nine Months Ended August 31, 2016
(comparisons on a year-over-year basis)
- Total revenues increased 17% to $2.40
billion.
- Land sale revenues totaled $4.2
million, compared to $110.5 million.
- Housing revenues grew 24% to $2.39
billion.
- Deliveries rose 21% to 6,769
homes.
- Average selling price increased 3% to
$353,100.
- Homebuilding operating income rose 41%
to $96.4 million.
- Net income increased 68% to $68.1
million and earnings per diluted share advanced to $.72 from
$.42.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- Ending backlog value grew 17% to $1.85
billion, reflecting increases in all of the Company’s regions.
- Homes in backlog rose 12% to
5,226.
- Net order value for the quarter grew
20% to $929.6 million.
- Net orders for the quarter increased
16% to 2,508.
- The cancellation rate as a percentage
of beginning backlog for the quarter improved to 19% from 20%, and
as a percentage of gross orders improved to 29% from 30%.
- Average community count for the quarter
decreased 9% to 235.
Balance Sheet (as of August 31,
2016)
- Cash, cash equivalents and restricted
cash totaled $335.3 million.
- Inventories totaled $3.60 billion, with
investments in land acquisition and development totaling $1.06
billion for the nine months ended August 31, 2016.
- Lots owned or controlled totaled
46,636, of which 81% were owned.
- There were no cash borrowings
outstanding under the unsecured revolving credit facility.
- Average diluted shares outstanding for
the quarter were reduced 7% from the year-earlier quarter to 95.2
million, reflecting repurchases of nearly 8.4 million shares of
common stock during the 2016 first quarter at a total cost of $85.9
million. No shares were repurchased in the 2016 second or third
quarters.
Earnings Conference Call
The conference call to discuss the Company’s third quarter 2016
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 severe 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; 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
(including our plans to transition out of the Metro Washington,
D.C. area), 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
strategic and operational initiatives that will enable us to expand
revenues and our operating income margin, increase our asset
efficiency and generate higher returns on invested capital; 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, and the management of its assets and operations during
the wind-down process; whether we can establish a joint venture or
other relationship with a mortgage banking services provider;
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.
KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months and Three Months Ended
August 31, 2016 and 2015
(In Thousands, Except Per Share Amounts —
Unaudited)
Nine Months Ended August 31, Three Months Ended August 31,
2016 2015 2016 2015
Total revenues $ 2,402,704
$ 2,046,247 $ 913,283 $ 843,157
Homebuilding: Revenues $ 2,394,315 $ 2,038,896 $ 910,111 $
840,204 Costs and expenses (2,297,908 ) (1,970,654 ) (858,634 )
(804,222 ) Operating income 96,407 68,242 51,477 35,982 Interest
income 395 342 109 87 Interest expense (5,667 ) (17,850 ) — (4,394
) Equity in loss of unconsolidated joint ventures (1,964 ) (1,180 )
(536 ) (422 ) Homebuilding pretax income 89,171 49,554
51,050 31,253
Financial services:
Revenues 8,389 7,351 3,172 2,953 Expenses (2,621 ) (2,802 ) (891 )
(910 ) Equity in income (loss) of unconsolidated joint ventures
(652 ) 3,023 132 658 Financial services pretax
income 5,116 7,572 2,413 2,701
Total
pretax income 94,287 57,126 53,463 33,954 Income tax expense
(26,200 ) (16,500 ) (14,100 ) (10,700 )
Net income $ 68,087
$ 40,626 $ 39,363 $ 23,254
Earnings
per share: Basic $ .79 $ .44 $ .46
$ .25
Diluted $ .72 $ .42 $ .42
$ .23
Weighted average shares outstanding:
Basic 85,952 92,005 84,457 92,065
Diluted 96,437 101,605 95,203
101,874
KB HOME CONSOLIDATED BALANCE
SHEETS
(In Thousands — Unaudited)
August 31,2016 November 30,2015
Assets
Homebuilding: Cash and cash equivalents $ 334,669 $ 559,042
Restricted cash 602 9,344 Receivables 149,219 152,682 Inventories
3,597,673 3,313,747 Investments in unconsolidated joint ventures
61,526 71,558 Deferred tax assets, net 756,596 782,196 Other assets
113,341 112,774 5,013,626 5,001,343
Financial
services 14,135 14,028
Total assets $ 5,027,761
$ 5,015,371
Liabilities and stockholders’
equity Homebuilding: Accounts payable $ 195,785 $
183,770 Accrued expenses and other liabilities 471,295 513,414
Notes payable 2,674,795 2,625,536 3,341,875 3,322,720
Financial services 3,436 1,817
Stockholders’ equity
1,682,450 1,690,834
Total liabilities and stockholders’
equity $ 5,027,761 $ 5,015,371
KB
HOME SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended
August 31, 2016 and 2015
(In Thousands, Except Average Selling
Price — Unaudited)
Nine Months Ended August 31, Three
Months Ended August 31, 2016 2015 2016 2015
Homebuilding
revenues: Housing $ 2,390,165 $ 1,928,395 $ 910,111 $ 798,633
Land 4,150 110,501 — 41,571 Total $
2,394,315 $ 2,038,896 $ 910,111 $ 840,204
Homebuilding costs and expenses:
Construction and land costs Housing $ 2,007,621 $ 1,622,530 $
760,490 $ 668,871 Land 10,401 103,446 — 40,277
Subtotal 2,018,022 1,725,976 760,490 709,148 Selling,
general and administrative expenses 279,886 244,678
98,144 95,074 Total $ 2,297,908 $ 1,970,654
$ 858,634 $ 804,222
Interest
expense: Interest incurred $ 138,994 $ 140,789 $ 46,485 $
46,587 Interest capitalized (133,327 ) (122,939 ) (46,485 ) (42,193
) Total $ 5,667 $ 17,850 $ — $ 4,394
Other information: Depreciation and
amortization $ 8,431 $ 8,413 $ 2,829 $ 2,853 Amortization of
previously capitalized interest 106,663 99,488 40,424
51,752
Average selling price:
West Coast $ 572,100 $ 571,500 $ 583,300 $ 579,800 Southwest
286,400 279,500 287,800 285,200 Central 265,900 244,600 272,100
256,000 Southeast 279,700 278,100 287,600
287,300 Total $ 353,100 $ 343,400 $ 365,900
$ 357,200
KB HOME
SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended
August 31, 2016 and 2015
(Dollars in Thousands — Unaudited)
Nine Months Ended August 31, Three Months Ended
August 31, 2016 2015 2016 2015
Homes
delivered: West Coast 1,799 1,498 710 625 Southwest 1,111 888
369 372 Central 2,647 2,212 976 822 Southeast 1,212 1,018
432 417 Total 6,769 5,616 2,487
2,236
Net orders: West Coast 2,325 1,886 775
564 Southwest 1,337 1,305 437 384 Central 3,042 2,864 931 818
Southeast 1,325 1,316 365 401 Total 8,029
7,371 2,508 2,167
Net order
value: West Coast $ 1,346,091 $ 1,088,175 $ 435,598 $ 331,864
Southwest 385,501 368,394 122,876 110,181 Central 845,164 758,592
263,707 223,168 Southeast 380,509 364,169 107,408
108,075 Total $ 2,957,265 $ 2,579,330 $
929,589 $ 773,288 August 31, 2016
August 31, 2015 Backlog Homes Backlog Value Backlog Homes Backlog
Value
Backlog data: West Coast 1,264 $ 724,795 981 $ 586,862
Southwest 831 234,736 741 204,802 Central 2,237 636,234 2,141
571,433 Southeast 894 252,815 801 222,381
Total 5,226 $ 1,848,580 4,664 $ 1,585,478
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURESFor the Nine Months and Three Months Ended
August 31, 2016 and 2015(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, both of which are not
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 the adjusted housing gross profit
margin and the ratio of net debt to capital are not calculated in
accordance with GAAP, these financial measures may not be
completely comparable to other companies in the homebuilding
industry and, therefore, 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:
Nine Months Ended August 31, Three Months Ended
August 31, 2016 2015 2016 2015 Housing revenues $
2,390,165 $ 1,928,395 $ 910,111 $ 798,633 Housing construction and
land costs (2,007,621 ) (1,622,530 ) (760,490 ) (668,871 ) Housing
gross profits 382,544 305,865 149,621 129,762 Add: Amortization of
previously capitalized interest (a) 106,181 83,050 40,424 35,314
Inventory-related charges (b) 10,615 4,516 3,052
3,532 Adjusted housing gross profits $ 499,340
$ 393,431 $ 193,097 $ 168,608 Housing gross
profit margin as a percentage of housing revenues 16.0 % 15.9 %
16.4 % 16.2 % Adjusted housing gross profit margin as a percentage
of housing revenues 20.9 % 20.4 % 21.2 % 21.1 %
(a) Represents the amortization of previously capitalized
interest associated with housing operations.
(b) Represents inventory impairment and land option contract
abandonment charges 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) amortization
of previously capitalized interest associated with housing
operations and (2) housing inventory impairment and land option
contract abandonment charges recorded during a given period, 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 the
amortization of previously capitalized interest associated with
housing operations, and housing inventory impairment and land
option contract abandonment charges 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 amortization of previously
capitalized interest associated with housing operations, and
housing inventory impairment and land option contract abandonment
charges. This financial measure assists management in making
strategic decisions regarding community location and product mix,
product pricing and construction pace.
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURES(In Thousands, Except Percentages —
Unaudited)
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 31,2016 November 30,2015 Notes payable $
2,674,795 $ 2,625,536 Stockholders’ equity 1,682,450
1,690,834 Total capital $ 4,357,245 $ 4,316,370
Ratio of debt to capital 61.4 % 60.8 % Notes
payable $ 2,674,795 $ 2,625,536 Less: Cash and cash equivalents and
restricted cash (335,271 ) (568,386 ) Net debt 2,339,524 2,057,150
Stockholders’ equity 1,682,450 1,690,834 Total
capital $ 4,021,974 $ 3,747,984 Ratio of net debt to
capital 58.2 % 54.9 %
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 and restricted cash,
by capital (notes payable, net of homebuilding cash and cash
equivalents and restricted cash, 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: http://www.businesswire.com/news/home/20160920006816/en/
KB HomeInvestor Relations:Jill
Peters310-893-7456jpeters@kbhome.comorMedia:Susan
Martin310-231-4142smartin@kbhome.com
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