Diluted Earnings Per Share Grew 62% to $1.02
Gross Margin Expanded to 20.8%, Up 340 Basis Points Net Order Value
Rose 35%; Backlog Value Increased 74% to $3.7 Billion
KB Home (NYSE: KBH) today reported results for its first quarter
ended February 28, 2021.
“We begin 2021 with positive momentum continuing across our
business. We achieved a 62% increase in our first quarter diluted
earnings per share primarily driven by substantial growth in our
gross margin to 21.1%, excluding inventory-related charges.
Multiple factors contributed to our significantly higher
profitability, in particular, our effective management of order
pace, price and starts to optimize our assets and generate a strong
return on each community,” said Jeffrey Mezger, Chairman, President
and Chief Executive Officer. “The combination of healthy housing
market conditions and our customer-centric approach produced a 23%
year-over-year increase in our net orders to nearly 4,300 homes.
The ongoing strength in our order activity reflects the favorable
demographics underlying demand. Millennials, the largest adult
population in the U.S., are now in their prime homebuying years and
continue to represent our largest cohort of buyers, underscoring
our competitive advantage in serving first-time buyers and success
in building homes in desirable locations at affordable price
points.”
“With our full year coming into better view, supported by a 74%
year-over-year increase in our backlog value and our ability to
match housing starts to net orders, we believe we are now even
better positioned for meaningful growth in 2021,” continued Mezger.
“We are executing on our plan to expand our scale while driving
both margins and returns higher.”
Three Months Ended February 28, 2021
(comparisons on a year-over-year basis)
- Revenues increased 6% to $1.14 billion.
- Homes delivered rose 4% to 2,864, their highest first-quarter
level since 2008.
- Average selling price increased 2% to $397,100.
- Homebuilding operating income grew 90% to $114.1 million from
$60.2 million. The homebuilding operating income margin increased
440 basis points to 10.0%. Excluding inventory-related charges of
$4.1 million in the current quarter and $5.7 million in the
year-earlier quarter, this metric improved to 10.4% from 6.1%.
- The housing gross profit margin expanded 340 basis points to
20.8%. Excluding inventory-related charges, the housing gross
profit margin increased 320 basis points to 21.1%.
- The housing gross profit margin improvement mainly reflected a
favorable pricing environment due to the strength of housing market
demand, increased operating leverage due to higher revenues, and
lower amortization of previously capitalized interest.
- Adjusted housing gross profit margin, a metric that excludes
inventory-related charges and the amortization of previously
capitalized interest, increased to 24.0% from 21.1%.
- Selling, general and administrative expenses as a percentage of
housing revenues decreased to 10.7% from 11.8%, mainly due to
targeted actions the Company took last year to reduce overhead
costs in the early stages of the COVID-19 pandemic; lower
advertising costs, partly reflecting the strong housing demand; and
increased operating leverage from higher revenues.
- The Company’s financial services operations generated pretax
income of $8.5 million, which increased 46% primarily due to higher
income from its mortgage banking joint venture, KBHS Home Loans,
LLC.
- KBHS Home Loans, LLC originated 79% of the residential mortgage
loans the Company’s homebuyers obtained to finance their home
purchase, compared to 71%.
- Total pretax income grew 79% to $123.6 million. As a percentage
of revenues, pretax income increased 440 basis points to
10.8%.
- The Company‘s income tax expense and effective tax rate were
$26.5 million and approximately 21%, respectively, compared to
income tax expense of $9.1 million and an effective tax rate of
approximately 13%. The higher effective tax rate reflected the
substantial increase in the Company’s pretax income, which reduced
the proportionate favorable impact of federal energy tax credits
and stock-based compensation tax benefits on the overall rate.
- Net income of $97.1 million and diluted earnings per share of
$1.02 each increased 62%, compared to net income of $59.7 million
and diluted earnings per share of $.63.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- Net orders grew 23% to 4,292, the Company’s highest
first-quarter level in 14 years, with net order value increasing by
$486.4 million, or 35%, to $1.87 billion. Both net orders and net
order value rose in all of the Company’s four regions, with net
order value growth ranging from 30% in the West Coast and Southwest
regions to 48% in the Central region.
- The cancellation rate as a percentage of gross orders improved
to 10% from 14%.
- Company-wide, net orders per community averaged 6.4 per month,
up 39% compared to 4.6.
- Ending backlog grew 59% to 9,238 homes, driving a 74% increase
in ending backlog value to $3.69 billion. Each of the Company’s
four regions posted sizable increases in backlog value, ranging
from 47% in the Southwest region to 99% in the West Coast
region.
- Average community count for the quarter decreased 11% to 223.
Ending community count of 209 was down 16%.
Balance Sheet as of February 28, 2021
(comparisons to November 30, 2020)
- Cash and cash equivalents totaled $569.8 million, compared to
$681.2 million.
- The Company had total liquidity of $1.36 billion, including
cash and cash equivalents and $787.6 million of available capacity
under its unsecured revolving credit facility. The Company did not
borrow under the facility during the quarter.
- Inventories increased 6% to $4.12 billion.
- Investments in land acquisition and development in the current
quarter grew 37% to $556.0 million, compared to $405.0 million in
the year-earlier quarter.
- The Company’s lots owned or under contract increased to 69,694,
up 10% from the year-earlier quarter and 4% from November 30, 2020.
- Of the Company’s total lots, approximately 60% were owned and
40% were under contract.
- The Company’s 41,582 owned lots represented a supply of
approximately 3.9 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 38.9% improved 70 basis
points. The Company’s net debt to capital ratio was 30.0%. On a
year-over-year basis, the debt to capital ratio and net debt to
capital ratio improved 280 basis points and 510 basis points,
respectively.
- In February 2021, Moody’s Investors Service reaffirmed the
Company’s corporate credit rating of Ba3 and upgraded the rating
outlook to positive from stable.
Conference Call
The conference call to discuss the Company’s 2021 first 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 45 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;
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; home
selling prices, including our homes’ selling prices, increasing at
a faster rate than consumer incomes; 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 any such 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 and
any extensions or broadening thereof, 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, including those discussed in
this release or in other public filings, presentations or
disclosures; 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 Ended February
28, 2021 and February 29, 2020 (In Thousands, Except Per Share
Amounts - Unaudited)
Three Months Ended
February 28, 2021
February 29, 2020
Total revenues
$
1,141,738
$
1,075,935
Homebuilding:
Revenues
$
1,138,008
$
1,072,382
Costs and expenses
(1,023,914
)
(1,012,187
)
Operating income
114,094
60,195
Interest income
653
935
Equity in income of unconsolidated joint
ventures
304
1,905
Homebuilding pretax income
115,051
63,035
Financial services:
Revenues
3,730
3,553
Expenses
(1,200
)
(962
)
Equity in income of unconsolidated joint
ventures
5,970
3,222
Financial services pretax income
8,500
5,813
Total pretax income
123,551
68,848
Income tax expense
(26,500
)
(9,100
)
Net income
$
97,051
$
59,748
Earnings per share:
Basic
$
1.05
$
.66
Diluted
$
1.02
$
.63
Weighted average shares
outstanding:
Basic
91,716
89,842
Diluted
94,903
94,205
KB HOME CONSOLIDATED
BALANCE SHEETS (In Thousands - Unaudited)
February 28, 2021
November 30, 2020
Assets
Homebuilding:
Cash and cash equivalents
$
569,793
$
681,190
Receivables
249,234
272,659
Inventories
4,123,953
3,897,482
Investments in unconsolidated joint
ventures
46,453
46,785
Property and equipment, net
67,558
65,547
Deferred tax assets, net
215,145
231,067
Other assets
118,306
125,510
5,390,442
5,320,240
Financial services
36,342
36,202
Total assets
$
5,426,784
$
5,356,442
Liabilities and stockholders’
equity
Homebuilding:
Accounts payable
$
280,541
$
273,368
Accrued expenses and other liabilities
649,110
667,501
Notes payable
1,747,007
1,747,175
2,676,658
2,688,044
Financial services
1,942
2,629
Stockholders’ equity
2,748,184
2,665,769
Total liabilities and stockholders’
equity
$
5,426,784
$
5,356,442
KB HOME SUPPLEMENTAL
INFORMATION For the Three Months Ended February 28, 2021 and
February 29, 2020 (In Thousands, Except Average Selling Price -
Unaudited)
Three Months Ended
February 28, 2021
February 29, 2020
Homebuilding revenues:
Housing
$
1,137,353
$
1,071,810
Land
655
572
Total
$
1,138,008
$
1,072,382
Homebuilding costs and
expenses:
Construction and land costs
Housing
$
901,178
$
885,481
Land
731
572
Subtotal
901,909
886,053
Selling, general and administrative
expenses
122,005
126,134
Total
$
1,023,914
$
1,012,187
Interest expense:
Interest incurred
$
31,092
$
30,962
Interest capitalized
(31,092
)
(30,962
)
Total
$
—
$
—
Other information:
Amortization of previously capitalized
interest
$
32,650
$
34,575
Depreciation and amortization
7,724
7,929
Average selling price:
West Coast
$
582,000
$
610,200
Southwest
351,500
316,400
Central
306,300
292,900
Southeast
288,400
292,000
Total
$
397,100
$
389,500
KB HOME SUPPLEMENTAL
INFORMATION For the Three Months Ended February 28, 2021 and
February 29, 2020 (Dollars in Thousands - Unaudited)
Three Months Ended
February 28, 2021
February 29, 2020
Homes delivered:
West Coast
884
794
Southwest
534
603
Central
1,011
968
Southeast
435
387
Total
2,864
2,752
Net orders:
West Coast
1,160
979
Southwest
867
765
Central
1,598
1,217
Southeast
667
534
Total
4,292
3,495
Net order value:
West Coast
$
779,551
$
598,416
Southwest
333,919
257,220
Central
552,941
373,481
Southeast
202,657
153,537
Total
$
1,869,068
$
1,382,654
February 28, 2021
February 29, 2020
Homes
Value
Homes
Value
Backlog data:
West Coast
2,300
$
1,417,644
1,228
$
712,218
Southwest
1,854
669,939
1,400
456,024
Central
3,624
1,176,047
2,237
680,904
Southeast
1,460
430,488
956
275,405
Total
9,238
$
3,694,118
5,821
$
2,124,551
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
February 28, 2021
February 29, 2020
Housing revenues
$
1,137,353
$
1,071,810
Housing construction and land costs
(901,178
)
(885,481
)
Housing gross profits
236,175
186,329
Add: Inventory-related charges (a)
4,064
5,672
Housing gross profits excluding
inventory-related charges
240,239
192,001
Add: Amortization of previously
capitalized interest (b)
32,496
34,575
Adjusted housing gross profits
$
272,735
$
226,576
Housing gross profit margin
20.8
%
17.4
%
Housing gross profit margin excluding
inventory-related charges
21.1
%
17.9
%
Adjusted housing gross profit margin
24.0
%
21.1
%
(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:
February 28, 2021
November 30, 2020
Notes payable
$
1,747,007
$
1,747,175
Stockholders’ equity
2,748,184
2,665,769
Total capital
$
4,495,191
$
4,412,944
Ratio of debt to capital
38.9
%
39.6
%
Notes payable
$
1,747,007
$
1,747,175
Less: Cash and cash equivalents
(569,793
)
(681,190
)
Net debt
1,177,214
1,065,985
Stockholders’ equity
2,748,184
2,665,769
Total capital
$
3,925,398
$
3,731,754
Ratio of net debt to capital
30.0
%
28.6
%
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/20210324005268/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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