KB Home Reports 2014 First Quarter Results
Revenues Increase 11% to
Net Income Increases to
Net Order Value Grows 18%; Backlog Value Up 21% to
Three Months Ended February 28, 2014
Total revenues grew 11% to
$450.7 millionfrom $405.2 millionin the year-earlier quarter, primarily on higher housing revenues.
Homebuilding revenues increased 45%, 18%, and 63% in the Company's
Southwest, Central and Southeast homebuilding regions,
respectively, partly offset by a decrease of 12% in its
West Coasthomebuilding region.
The Company delivered 1,442 homes in the current quarter, compared
to 1,485 homes delivered in the first quarter of 2013, as a
decrease in the Company's
West Coasthomebuilding region was mostly offset by increases in its other three homebuilding regions.
West Coastdeliveries declined from the year-earlier quarter, primarily due to the region's lower backlog at the beginning of the quarter.
The overall average selling price of
$305,200rose $33,900, or 12%, from the year-earlier quarter, reflecting the Company's strategic operational targeting of attractive, land-constrained locations that generally feature higher household incomes and demand for larger homes, as well as incremental revenues generated from lot premiums, options and upgrades, and generally favorable market conditions.
Average selling prices were higher in all four of the
Company's homebuilding regions compared to the year-earlier
quarter, with increases ranging from 13% in its Central region
to 30% in its
The significant increase in the Company's
West Coastregion average selling price partly mitigated the impact fewer homes delivered had on revenues in the region.
- Average selling prices were higher in all four of the Company's homebuilding regions compared to the year-earlier quarter, with increases ranging from 13% in its Central region to 30% in its
- Homebuilding revenues increased 45%, 18%, and 63% in the Company's Southwest, Central and Southeast homebuilding regions, respectively, partly offset by a decrease of 12% in its
The Company generated homebuilding operating income of
$17.7 million, up from $.5 millionin the year-earlier quarter. As a percentage of homebuilding revenues, operating income rose 390 basis points to 4.0%, compared to .1% for the 2013 first quarter.
- The housing gross profit margin expanded 290 basis points to 17.7% from 14.8% for the year-earlier quarter, marking the Company's highest first quarter housing gross profit margin since 2006.
Selling, general and administrative expenses as a percentage of
housing revenues improved 80 basis points to 13.9% in the current
quarter compared to 14.7% in the year-earlier quarter, primarily
due to the Company's higher year-over-year revenues and actions it
has taken to contain costs.
- This marked the Company's lowest first quarter selling, general and administrative expense ratio since 2007.
Interest expense decreased to
$11.3 millionfrom $15.2 millionin the year-earlier quarter, reflecting an increase in the amount of interest capitalized.
The Company's financial services operations posted pretax income of
$1.6 million, down from $2.7 millionin the year-earlier quarter. The 2013 first quarter included income recognized in connection with the wind down of a former mortgage banking joint venture.
Net income increased to
$10.6 million, or $.12per diluted share, compared to a net loss of $12.5 million, or $.16per diluted share, in the first quarter of 2013, mainly due to the Company's higher revenues, expanded housing gross profit margin, and improved selling, general and administrative expense ratio.
The current quarter also included a gain of
$3.2 millionon the sale of the Company's interest in an unconsolidated joint venture in Maryland.
- The Company generated first quarter net income for the first time since 2007.
- The current quarter also included a gain of
Backlog and Net Orders
Potential future housing revenues in backlog at February 28, 2014
increased 21% to
$851.6 millionfrom $703.9 millionat February 28, 2013, reflecting both a greater number of homes in backlog and a higher average selling price.
The Company's backlog was comprised of 2,880 homes at February 28,
2014, up 4% from 2,763 homes at
February 28, 2013.
- The Company's backlog was comprised of 2,880 homes at February 28, 2014, up 4% from 2,763 homes at
The overall value of net orders for the 2014 first quarter was
$600.2 million, up 18% from $506.8 millionfor the year-earlier quarter. The current quarter increase was measured against the first quarter of 2013, when the net order value increased 83% from the prior year.
- Each of the Company's four homebuilding regions reported year-over-year growth in net order value, with increases ranging from 11% in its Southwest region to 27% in its Central region.
Net orders increased 6% from the year-earlier quarter to 1,765,
reflecting a rise in the Company's community count, as it continues to
convert the substantial land investments it has made over the past
several quarters to open communities.
- The first quarter net order comparison was against a 2013 first quarter that had a 40% year-over-year increase in net orders.
- Our average community count increased 10% to 190 from 172 for the year-earlier quarter.
- The first quarter cancellation rate as a percentage of gross orders improved to 30% in 2014, compared to 32% in 2013. As a percentage of beginning backlog, the first quarter cancellation rate was 30% in both 2014 and 2013.
Cash, cash equivalents and restricted cash totaled
$345.4 millionat February 28, 2014, compared to $572.0 millionat November 30, 2013.
The decline in total cash, cash equivalents and restricted cash
was mainly due to the Company's continued investments in
inventories to support future growth.
The Company had no borrowings outstanding under its
$200million unsecured revolving credit facility as of February 28, 2014.
- The Company had no borrowings outstanding under its
- The decline in total cash, cash equivalents and restricted cash was mainly due to the Company's continued investments in inventories to support future growth.
Inventories increased to
$2.63 billionat February 28, 2014 from $2.30 billionat November 30, 2013as a result of land acquisition and development activities and a distribution of 549 acres, or $70.6 million, of land from Inspirada Builders, LLC, the Company's unconsolidated joint venture in Las Vegas.
Land and land development investments totaled
$354.3 millionfor the three months ended February 28, 2014, as the Company continued to execute on its strategic initiatives designed to support future growth.
- Land and land development investments totaled
The Company's investments in unconsolidated joint ventures decreased
$60.6 millionat February 28, 2014from $130.2 millionat November 30, 2013, primarily due to the distribution of land from Inspirada Builders, LLC.
At February 28, 2014, the Company's debt balance of
$2.18 billionwas essentially flat with the balance of $2.15 billionat November 30, 2013.
"We are pleased by our first quarter results," said
"As we continue to execute on our business strategies, increasing the number of communities we operate will be a key factor in driving higher revenues and profits this year," said Mezger. "Through our substantial investments in land and land development over the past few years, we believe we have created a solid platform for growth. In the current quarter, our double-digit percentage increase in community count helped us generate net order growth, and we are actively working to open additional new home communities. We are entering the spring selling season positioned with more communities open in attractive locations across the country, and we are confident that our balanced approach to sales price and pace, combined with our focus on both top-line growth and profitability, will produce strong results in the coming quarters."
Earnings Conference Call
The conference call on the first quarter 2014 earnings will be broadcast
live TODAY at
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; adverse
market conditions, including an increased supply of unsold homes,
declining home prices and greater foreclosure and short sale activity,
among other things, that could negatively affect our consolidated
financial statements, including due to additional impairment or land
option contract abandonment charges, lower revenues and operating and
other losses; conditions in the capital, credit and financial markets
(including residential consumer mortgage lending standards, the
availability of residential consumer mortgage financing and mortgage
foreclosure rates); material prices and availability; labor costs and
availability; changes in interest rates; inflation; our debt level,
including our ratio of debt to total capital, and our ability to adjust
our debt level, maturity schedule and structure and to access the
equity, credit, capital or other financial markets or other external
financing sources, including raising capital through the public or
private issuance of common stock, debt or other securities, and/or
project financing, on favorable terms; our compliance with the terms and
covenants of our revolving credit facility; weak or declining consumer
confidence, either generally or specifically with respect to purchasing
homes; competition for home sales from other sellers of new and resale
homes, including lenders and other sellers of homes obtained through
foreclosures or short sales; weather conditions, significant natural
disasters and other environmental factors; government actions, policies,
programs and regulations directed at or affecting the housing market
(including the Dodd-Frank Act, tax credits, tax incentives and/or
subsidies for home purchases, tax deductions for residential consumer
mortgage interest payments and property taxes, tax exemptions for
profits on home sales, programs intended to modify existing mortgage
loans and to prevent mortgage foreclosures 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; decisions regarding
federal fiscal and monetary policies, including those relating to
taxation, government spending, interest rates and economic stimulus
measures; the availability and cost of land in desirable areas; our
warranty claims experience with respect to homes previously delivered
and actual warranty costs incurred, including our warranty claims and
costs experience at certain of our communities in
|CONSOLIDATED STATEMENTS OF OPERATIONS|
For the Three Months Ended
(In Thousands, Except Per Share Amounts — Unaudited)
|Costs and expenses||(430,548||)||(402,362||)|
|Equity in income (loss) of unconsolidated joint ventures||2,590||(435||)|
|Homebuilding pretax income (loss)||9,201||(15,017||)|
|Equity in income (loss) of unconsolidated joint ventures||(6||)||1,091|
|Financial services pretax income||1,562||2,659|
|Total pretax income (loss)||10,763||(12,358||)|
|Income tax expense||(200||)||(100||)|
|Net income (loss)||$||10,563||$||(12,458||)|
|Earnings (loss) per share:|
|Weighted average shares outstanding:|
|CONSOLIDATED BALANCE SHEETS|
(In Thousands — Unaudited)
|Cash and cash equivalents||$||303,269||$||530,095|
|Investments in unconsolidated joint ventures||60,648||130,192|
|Liabilities and stockholders' equity|
|Accrued expenses and other liabilities||386,085||356,176|
|Mortgages and notes payable||2,175,190||2,150,498|
|Total liabilities and stockholders' equity||$||3,248,172||$||3,193,635|
For the Three Months Ended
(In Thousands — Unaudited)
|Costs and expenses:|
|Construction and land costs|
|Selling, general and administrative expenses||61,274||59,097|
|Depreciation and amortization||$||2,067||$||1,436|
|Amortization of previously capitalized interest||17,485||18,705|
For the Three Months Ended
|Average sales price:|
|Three Months - Units||Three Months - Value|
|Net orders (dollars in thousands):|
|Backlog data (dollars in thousands):|
|RECONCILIATION OF NON-GAAP FINANCIAL MEASURES|
For the Three Months Ended
(In Thousands, Except Percentages — Unaudited)
Company management's discussion of the results presented in this press release may include information about the Company's adjusted housing gross profit margin which is not calculated in accordance with generally accepted accounting principles ("GAAP"). The Company believes this non-GAAP financial measure is relevant and useful to investors in understanding its operations, and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. However, because the adjusted housing gross profit margin is not calculated in accordance with GAAP, this measure may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to the operating and financial performance measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement its respective most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting the Company's operations.
Adjusted Housing Gross Profit Margin
The following table reconciles the Company's housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of the Company's adjusted housing gross profit margin:
|Housing construction and land costs||(362,106||)||(343,265||)|
|Housing gross profits||78,021||59,551|
|Add: Land option contract abandonment charges||433||—|
|Water intrusion-related charges||—||1,674|
|Adjusted housing gross profits||$||78,454||$||61,225|
|Housing gross profit margin as a percentage of housing revenues||17.7||%||14.8||%|
|Adjusted housing gross profit margin as a percentage of housing revenues||17.8||%||15.2||%|
Adjusted housing gross profit margin is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less land option contract abandonment charges and water intrusion-related charges (as applicable) associated with housing operations 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 and enhances the comparability of housing gross profit margin between periods. This financial measure assists management in making strategic decisions regarding product mix, product pricing and construction pace. 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 land option contract abandonment charges and water intrusion-related charges.
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