Revenues Totaled $1.44 Billion, up 58%
Diluted Earnings Per Share Grew 173% to $1.50 Gross
Margin Expanded to 21.4%; Operating Income Margin Improved to
11.3% Backlog Value Increased 126% to $4.29 Billion
KB Home (NYSE: KBH) today reported results for its second
quarter ended May 31, 2021.
“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,” said
Jeffrey Mezger, Chairman, President and Chief Executive Officer.
“Operationally, our team remains resilient, focused on delivering
exceptional customer satisfaction amid the challenges associated
with the incredible demand and supply chain constraints that have
characterized this housing market over the past year. As we
continue to generate strong net orders, we have also been able to
scale up our production, matching starts to sales.”
“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%.
As we look to 2022, our backlog, together with our expected
community count growth, positions our company for another year of
healthy expansion.”
Three Months Ended May 31, 2021
(comparisons on a year-over-year basis)
The Company’s results for the comparable 2020 quarter were
adversely impacted by the outbreak of the COVID-19 pandemic and the
extensive and restrictive public health measures implemented during
that period to contain and combat the outbreak.
- Revenues increased 58% to $1.44 billion.
- Homes delivered rose 40% to 3,504.
- Average selling price increased 13% to $409,800.
- Homebuilding operating income grew 216% to $162.9 million from
$51.6 million. The homebuilding operating income margin increased
560 basis points to 11.3%. Excluding $.5 million of
inventory-related charges in the 2021 second quarter, and $4.4
million of inventory-related charges and $6.7 million of severance
charges in the year-earlier quarter, this metric improved to 11.4%
from 6.9%.
- The housing gross profit margin expanded 320 basis points to
21.4%. Excluding inventory-related charges, the housing gross
profit margin improved to 21.5% from 18.7%.
- The housing gross profit margin improvement mainly reflected a
favorable pricing environment due to the strength of housing market
demand and the limited supply of available homes for sale,
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 24.2% from 21.9%.
- Selling, general and administrative expenses as a percentage of
housing revenues improved to 10.1% from 12.6%, primarily reflecting
the continued impact from targeted actions the Company took to
reduce overhead costs in the early stages of the COVID-19 pandemic;
increased operating leverage from higher revenues; and the
above-noted severance charges in the year-earlier quarter.
- The Company’s financial services operations generated pretax
income of $10.6 million, which increased 40%, mainly due to higher
income from its mortgage banking joint venture, KBHS Home Loans,
LLC.
- KBHS Home Loans, LLC originated 75% of the residential mortgage
loans the Company’s homebuyers obtained to finance their home
purchase, achieving essentially the same level as in the
year-earlier quarter.
- Total pretax income grew 156% to $173.7 million. As a
percentage of revenues, pretax income increased 470 basis points to
12.1%.
- The Company’s income tax expense and effective tax rate were
$30.3 million and approximately 17%, respectively, compared to
income tax expense of $15.8 million and an effective tax rate of
approximately 23%. The lower effective tax rate primarily reflected
an increase in federal energy tax credits the Company earned from
building energy efficient homes.
- Net income of $143.4 million and diluted earnings per share of
$1.50 increased 176% and 173%, respectively, compared to net income
of $52.0 million and diluted earnings per share of $.55.
Six Months Ended May 31, 2021
(comparisons on a year-over-year basis)
- Homes delivered increased 21% to 6,368.
- Average selling price rose to $404,100, up 7%.
- Revenues of $2.58 billion were up 30%.
- Pretax income grew 118% to $297.2 million.
- Net income increased 115% to $240.4 million and diluted
earnings per share rose 112% to $2.52.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- Net orders for the quarter grew 145% to 4,300, the Company’s
highest second-quarter level in 14 years, with net order value
increasing by $1.35 billion, or 196%, to $2.04 billion. Both net
orders and net order value rose in all of the Company’s four
regions, with net order value growth ranging from 118% in the
Central region to 406% in the Southeast region.
- The cancellation rate as a percentage of gross orders for the
quarter improved to 9% from 43%. The cancellation rate in the
year-earlier period largely reflected the Company’s proactive
efforts to assure a backlog of qualified homebuyers amid the
unprecedented nationwide economic and employment disruptions
resulting from the outbreak of the COVID-19 pandemic.
- Ending backlog grew 98% to 10,034 homes, driving a 126%
increase in ending backlog value to $4.29 billion. Each of the
Company’s four regions generated a triple-digit increase in backlog
value, ranging from 105% in the Central region to 155% in the
Southeast region.
- Strong housing demand drove an increase in the Company’s
average monthly net orders per community to 7.0 from 2.4, which
accelerated community closeouts during the quarter. As a result,
the Company’s average community count decreased 17% to 205, and its
ending community count was 200, compared to 244.
Balance Sheet as of May 31, 2021
(comparisons to November 30, 2020)
- Cash and cash equivalents totaled $608.1 million, compared to
$681.2 million.
- The Company had total liquidity of $1.40 billion, including
cash and cash equivalents and $787.6 million of available capacity
under its unsecured revolving credit facility. The Company has not
borrowed under the facility since 2019.
- Inventories increased 10% to $4.27 billion.
- Investments in land acquisition and development for the six
months ended May 31, 2021 rose 79% to $1.13 billion, compared to
$633.5 million for the year-earlier period.
- The Company’s lots owned or under contract increased to 77,458,
up 16% from November 30, 2020 and 28% year over year.
- Of the Company’s total lots, approximately 55% were owned and
45% were under contract.
- The Company’s 42,733 owned lots represented a supply of
approximately 3.6 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 improved 190 basis points
to 37.7%. The Company’s net debt to capital ratio of 28.3% improved
30 basis points. On a year-over-year basis, the debt to capital
ratio and net debt to capital ratio improved 380 basis points and
410 basis points, respectively.
- In May 2021, Moody’s Investors Service upgraded the Company’s
corporate credit rating to Ba2 from Ba3 and changed the rating
outlook to stable from positive.
- On June 9, 2021, the Company completed the issuance of $390.0
million in aggregate principal amount of 4.00% senior notes due
2031, and used a portion of the net proceeds to purchase, pursuant
to a tender offer that expired the previous day, $269.8 million in
aggregate principal amount of its outstanding $450.0 million of
7.00% senior notes due December 15, 2021. The Company intends to
use the remaining net proceeds together with cash on hand to redeem
the remainder of these notes at par value on September 15, 2021.
- The Company expects to recognize a charge of approximately $5.0
million for the early extinguishment of debt in the 2021 third
quarter.
- The recently completed transactions, together with the planned
redemption of the remaining $180.2 million of 7.00% senior notes on
September 15, 2021, will effectively extend the weighted average
maturity of the Company’s senior notes by more than two years and
reduce its weighted average borrowing rate by approximately 70
basis points.
Environmental, Social and Governance
(“ESG”) News
- On April 13, 2021, the Company was named an ENERGY STAR®
Partner of the Year — Sustained Excellence Award Winner for the
11th consecutive year by the U.S. Environmental Protection Agency.
The Company has built over 150,000 ENERGY STAR certified homes,
more than any other homebuilder in the nation.
- On Earth Day, April 22, 2021, the Company released its 14th
Annual Sustainability Report, which details its priorities and
achievements in three core areas: environmental sustainability,
social responsibility and economic sustainability; and highlights
the Company’s evolving ESG standards and practices as part of its
focus on long-term value creation. The full report can be found on
the Company’s website.
Conference Call
The conference call to discuss the Company’s 2021 second 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 is one of the largest and most recognized homebuilders
in the United States and has built nearly 650,000 quality homes in
our more than 60-year history. Today, KB Home operates in 45
markets from coast to coast. What sets KB Home apart is the
exceptional personalization we offer our homebuyers—from those
buying their first home to experienced buyers—allowing them to make
their home uniquely their own, at a price that fits their budget.
As the leader in energy-efficient homebuilding, KB Home was the
first builder to make every home it builds ENERGY STAR® certified,
a standard of energy performance achieved by fewer than 10% of new
homes in America, and has built more ENERGY STAR certified homes
than any other builder. An energy-efficient KB home helps lower the
cost of ownership and is designed to be healthier, more comfortable
and better for the environment than homes without certification. We
build strong, personal relationships with our customers so they
have a real partner in the homebuying process. As a result, we have
the distinction of being the #1 customer-ranked national
homebuilder in third-party buyer satisfaction surveys. 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
securities repurchases pursuant to our board of directors’
authorization; material and trade costs and availability,
particularly lumber; consumer and producer price inflation; 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; home
selling prices, including our homes’ selling prices, increasing at
a faster rate than consumer incomes; 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 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, the 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 any of our 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; widespread protests and civil unrest, whether
due to political events, efforts to institute law enforcement and
other social and political reforms, or otherwise, 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 Six
Months Ended May 31, 2021 and 2020
(In Thousands, Except Per Share
Amounts - Unaudited)
Three Months Ended May 31,
Six Months Ended May 31,
2021
2020
2021
2020
Total revenues
$
1,440,892
$
913,970
$
2,582,630
$
1,989,905
Homebuilding:
Revenues
$
1,436,035
$
910,280
$
2,574,043
$
1,982,662
Costs and expenses
(1,273,133
)
(858,691
)
(2,297,047
)
(1,870,878
)
Operating income
162,902
51,589
276,996
111,784
Interest income
241
442
894
1,377
Equity in income (loss) of unconsolidated
joint ventures
(127
)
8,154
177
10,059
Homebuilding pretax income
163,016
60,185
278,067
123,220
Financial services:
Revenues
4,857
3,690
8,587
7,243
Expenses
(1,253
)
(883
)
(2,453
)
(1,845
)
Equity in income of unconsolidated joint
ventures
7,044
4,797
13,014
8,019
Financial services pretax income
10,648
7,604
19,148
13,417
Total pretax income
173,664
67,789
297,215
136,637
Income tax expense
(30,300
)
(15,800
)
(56,800
)
(24,900
)
Net income
$
143,364
$
51,989
$
240,415
$
111,737
Earnings per share:
Basic
$
1.55
$
.57
$
2.60
$
1.23
Diluted
$
1.50
$
.55
$
2.52
$
1.19
Weighted average shares
outstanding:
Basic
92,087
90,493
91,904
90,169
Diluted
95,379
93,472
95,143
93,628
KB HOME
CONSOLIDATED BALANCE
SHEETS
(In Thousands - Unaudited)
May 31, 2021
November 30, 2020
Assets
Homebuilding:
Cash and cash equivalents
$
608,069
$
681,190
Receivables
271,080
272,659
Inventories
4,272,566
3,897,482
Investments in unconsolidated joint
ventures
45,358
46,785
Property and equipment, net
69,336
65,547
Deferred tax assets, net
199,445
231,067
Other assets
115,233
125,510
5,581,087
5,320,240
Financial services
37,846
36,202
Total assets
$
5,618,933
$
5,356,442
Liabilities and stockholders’
equity
Homebuilding:
Accounts payable
$
316,989
$
273,368
Accrued expenses and other liabilities
665,690
667,501
Notes payable
1,747,447
1,747,175
2,730,126
2,688,044
Financial services
1,942
2,629
Stockholders’ equity
2,886,865
2,665,769
Total liabilities and stockholders’
equity
$
5,618,933
$
5,356,442
KB HOME
SUPPLEMENTAL
INFORMATION
For the Three Months and Six
Months Ended May 31, 2021 and 2020
(In Thousands, Except Average
Selling Price - Unaudited)
Three Months Ended May 31,
Six Months Ended May 31,
2021
2020
2021
2020
Homebuilding revenues:
Housing
$
1,436,032
$
909,978
$
2,573,385
$
1,981,788
Land
3
302
658
874
Total
$
1,436,035
$
910,280
$
2,574,043
$
1,982,662
Homebuilding costs and
expenses:
Construction and land costs
Housing
$
1,128,017
$
744,151
$
2,029,195
$
1,629,632
Land
1
302
732
874
Subtotal
1,128,018
744,453
2,029,927
1,630,506
Selling, general and administrative
expenses
145,115
114,238
267,120
240,372
Total
$
1,273,133
$
858,691
$
2,297,047
$
1,870,878
Interest expense:
Interest incurred
$
31,110
$
31,055
$
62,202
$
62,017
Interest capitalized
(31,110
)
(31,055
)
(62,202
)
(62,017
)
Total
$
—
$
—
$
—
$
—
Other information:
Amortization of previously capitalized
interest
$
39,600
$
28,746
$
72,250
$
63,321
Depreciation and amortization
8,068
7,815
15,792
15,744
Average selling price:
West Coast
$
622,000
$
567,200
$
603,300
$
591,900
Southwest
360,900
317,100
356,900
316,700
Central
317,000
297,600
312,200
295,200
Southeast
293,500
292,300
291,200
292,100
Total
$
409,800
$
364,100
$
404,100
$
377,400
KB HOME
SUPPLEMENTAL
INFORMATION
For the Three Months and Six
Months Ended May 31, 2021 and 2020
(Dollars in Thousands -
Unaudited)
Three Months Ended May 31,
Six Months Ended May 31,
2021
2020
2021
2020
Homes delivered:
West Coast
1,006
585
1,890
1,379
Southwest
715
552
1,249
1,155
Central
1,232
955
2,243
1,923
Southeast
551
407
986
794
Total
3,504
2,499
6,368
5,251
Net orders:
West Coast
1,300
555
2,460
1,534
Southwest
924
305
1,791
1,070
Central
1,292
719
2,890
1,936
Southeast
784
179
1,451
713
Total
4,300
1,758
8,592
5,253
Net order value:
West Coast
$
937,416
$
324,936
$
1,716,967
$
923,352
Southwest
374,700
99,464
708,619
356,684
Central
463,746
212,445
1,016,687
585,926
Southeast
260,975
51,599
463,632
205,136
Total
$
2,036,837
$
688,444
$
3,905,905
$
2,071,098
May 31, 2021
May 31, 2020
Homes
Value
Homes
Value
Backlog data:
West Coast
2,594
$
1,729,370
1,198
$
705,357
Southwest
2,063
786,578
1,153
380,454
Central
3,684
1,249,238
2,001
609,156
Southeast
1,693
529,737
728
208,050
Total
10,034
$
4,294,923
5,080
$
1,903,017
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 May 31,
Six Months Ended May 31,
2021
2020
2021
2020
Housing revenues
$
1,436,032
$
909,978
$
2,573,385
$
1,981,788
Housing construction and land costs
(1,128,017)
(744,151)
(2,029,195)
(1,629,632)
Housing gross profits
308,015
165,827
544,190
352,156
Add: Inventory-related charges (a)
457
4,379
4,521
10,051
Housing gross profits excluding
inventory-related charges
308,472
170,206
548,711
362,207
Add: Amortization of previously
capitalized interest (b)
39,600
28,746
72,096
63,321
Adjusted housing gross profits
$
348,072
$
198,952
$
620,807
$
425,528
Housing gross profit margin
21.4
%
18.2
%
21.1
%
17.8
%
Housing gross profit margin excluding
inventory-related charges
21.5
%
18.7
%
21.3
%
18.3
%
Adjusted housing gross profit margin
24.2
%
21.9
%
24.1
%
21.5
%
(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:
May 31, 2021
November 30, 2020
Notes payable
$
1,747,447
$
1,747,175
Stockholders’ equity
2,886,865
2,665,769
Total capital
$
4,634,312
$
4,412,944
Ratio of debt to capital
37.7
%
39.6
%
Notes payable
$
1,747,447
$
1,747,175
Less: Cash and cash equivalents
(608,069)
(681,190)
Net debt
1,139,378
1,065,985
Stockholders’ equity
2,886,865
2,665,769
Total capital
$
4,026,243
$
3,731,754
Ratio of net debt to capital
28.3
%
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.
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version on businesswire.com: https://www.businesswire.com/news/home/20210623005317/en/
For Further Information: 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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