KB Home Reports 2015 First Quarter Results
Revenues Increase 29% to
Net Income of
Net Order Value Up 25% to
Three Months Ended
Total revenues of
$580.1 millionrose 29% from $450.7 millionin the year-earlier quarter, driven by growth in the Company's housing and land sale revenues. The Company's total revenues have increased on a year-over-year basis for 14 consecutive quarters.
Housing revenues grew 19% to
$524.8 millionin the current quarter from $440.1 millionfor the corresponding quarter of 2014. The Company delivered 1,593 homes in the first quarter, representing an increase of 10% from 1,442 homes delivered in the year-earlier quarter.
The overall average selling price of homes delivered grew 8%
$329,500, up from $305,200a year ago, reflecting a shift in the geographic mix of deliveries and generally favorable conditions in the Company's served markets.
* Average selling prices in the Company's
West Coast, Central and Southeast homebuilding regions increased 5%, 13% and 3%, respectively, compared to the same quarter of 2014, while the average selling price in its Southwest homebuilding region decreased 4%.
- The overall average selling price of homes delivered grew 8% to
Land sale revenues increased to
$53.0 millionfrom $8.1 milliona year ago, primarily due to the Company's current quarter sale of a large parcel in northern Californiaas part of its strategic emphasis on enhancing asset efficiency by executing on targeted opportunities to monetize certain land positions.
- Housing revenues grew 19% to
Homebuilding operating income totaled
$14.4 million, compared to $17.7 millionin the year-earlier quarter. The current quarter included a $6.0 milliongain on the sale of land, compared to a $1.0 milliongain in the prior-year quarter.
The Company's housing gross profit margin decreased 260 basis
points to 15.1% from 17.7% in the year-earlier quarter. Excluding
the amortization of previously capitalized interest and land
option contract abandonment charges in each period, the Company's
first quarter adjusted housing gross profit margin was 19.5% in
2015 and 21.8% in 2014.
The year-over-year decline in the housing gross profit margin
was primarily due to higher land and construction costs,
start-up field costs associated with new home community
openings, competitive pricing pressures, and the close-out of
certain higher margin communities within the Company's
West Coasthomebuilding region in the latter part of 2014.
- The year-over-year decline in the housing gross profit margin was primarily due to higher land and construction costs, start-up field costs associated with new home community openings, competitive pricing pressures, and the close-out of certain higher margin communities within the Company's
- Selling, general and administrative expenses as a percentage of housing revenues improved 40 basis points to 13.5% from 13.9% in the year-earlier quarter even as the Company increased staffing levels during the current quarter to support community count growth and a higher number of deliveries anticipated in the second half of 2015.
- The Company's housing gross profit margin decreased 260 basis points to 15.1% from 17.7% in the year-earlier quarter. Excluding the amortization of previously capitalized interest and land option contract abandonment charges in each period, the Company's first quarter adjusted housing gross profit margin was 19.5% in 2015 and 21.8% in 2014.
Interest expense decreased to
$5.3 millionfrom $11.3 millionin the year-earlier quarter due to an increase in the amount of the Company's inventory qualifying for interest capitalization in the current quarter, partly offset by an increase in interest incurred.
Financial services operations generated pretax income of
$1.7 millionin the current quarter and $1.6 millionin the year-earlier quarter. The current quarter results included $.4 millionof pretax income from Home Community Mortgage, LLC, the Company's mortgage banking joint venture with Nationstar Mortgage LLCthat commenced operations in July 2014.
The Company's total pretax income of
$10.5 millionfor the first quarter of 2015 was nearly even with $10.8 millionfor the year-earlier period.
The 2014 first quarter included a gain of
$3.2 millionon the sale of the Company's interest in an unconsolidated joint venture.
- The 2014 first quarter included a gain of
Net income for the current quarter totaled
$7.8 million, or $.08per diluted share, compared to $10.6 million, or $.12per diluted share, for the first quarter of 2014.
Income tax expense of
$2.7 millionfor the current quarter reflected the favorable impact of $1.4 millionof federal energy tax credits the Company earned from building high-efficiency homes, resulting in an effective tax rate of approximately 26%. The year-earlier quarter included income tax expense of $.2 million.
- Income tax expense of
Backlog and Net Orders
Potential future housing revenues in backlog rose 30% to
$1.11 billionat February 28, 2015from $851.6 millionat February 28, 2014.
The Company's backlog at
February 28, 2015was comprised of 3,505 homes, up 22% from 2,880 homes in backlog at February 28, 2014.
The number of homes in backlog and corresponding backlog value at
February 28, 2015reached their highest first-quarter levels since 2008.
- The Company's backlog at
Net order value rose 25% to
$753.2 million, up from $600.2 millionin the year-earlier quarter, marking the Company's 12th straight quarter of year-over-year increases.
All four of the Company's homebuilding regions posted
year-over-year growth in net order value, ranging from 6% in the
West Coasthomebuilding region to 125% in the Southwest homebuilding region.
In the Company's Central homebuilding region, which primarily
consists of its operations in
Texas, net order value was up 34% from a year ago.
- In the Company's Central homebuilding region, which primarily consists of its operations in
- All four of the Company's homebuilding regions posted year-over-year growth in net order value, ranging from 6% in the
Net orders increased 24% from the year-earlier quarter to 2,189,
mainly due to the Company's higher average community count.
- The current quarter cancellation rate, both as a percentage of gross orders and as a percentage of beginning backlog, improved to 25% from 30% a year ago.
The Company's overall average community count for the first quarter
increased 22% to 231, up from 190 for the year-earlier quarter.
- The Company ended the current quarter with 235 communities open for sales, up 25% from 188 communities a year ago.
Cash, cash equivalents and restricted cash increased to
$573.6 millionat February 28, 2015, compared to $383.6 millionat November 30, 2014, largely due to proceeds received from a senior notes offering completed in the current quarter, partly offset by cash used in operating activities.
The Company had no borrowings outstanding under its
$200 millionunsecured revolving credit facility at February 28, 2015.
- The Company had no borrowings outstanding under its
$3.25 billionat February 28, 2015were essentially even with the $3.22 billionat November 30, 2014.
The Company's investments in land acquisition and development
$201.6 millionfor the first quarter of 2015 and $354.3 millionfor the corresponding quarter of 2014.
- The Company's investments in land acquisition and development totaled
Notes payable of
$2.82 billionat February 28, 2015rose from $2.58 billionat November 30, 2014, mainly reflecting the Company's current-quarter underwritten public issuance of $250 millionin aggregate principal amount of 7.625% senior notes due 2023.
The Company currently plans to use a portion of the net proceeds
from the issuance to repay
$199.9 millionin aggregate principal amount of its 6 1/4% senior notes at their maturity on June 15, 2015.
The Company's ratio of debt to capital was 63.8% as of
February 28, 2015compared to 61.8% as of November 30, 2014. The ratio of net debt to capital was 58.4% at February 28, 2015and 57.9% at November 30, 2014.
- The Company currently plans to use a portion of the net proceeds from the issuance to repay
"We are pleased with the robust growth in our first quarter net orders,
net order value and backlog levels, which was fueled primarily by our
expanded community count and healthy buyer demand," said
"We extended our positive revenue growth trajectory during the quarter, driven by increases in both the number of homes delivered and the average selling price compared to a year ago," continued Mezger. "As we anticipated, our housing gross profit margin was tempered in the quarter; however, with our rising community count providing a strong start entering the spring selling season and the leverage benefits we are anticipating from projected higher revenues, we expect to produce sequential margin improvement in each of the remaining quarters of 2015, and to significantly narrow the year-over-year gap in our gross margin percentage by the end of the year. Moreover, as the year unfolds, we also anticipate accelerated growth in our revenues as well as greater operating leverage to bolster our bottom-line performance. We believe that further progress on the execution of our strategies to enhance our top-line growth, profitability, asset efficiency and return on invested capital will be a catalyst that, along with the benefits of our larger community count, will enable us to deliver strong financial and operational results in the second half of this year."
Earnings Conference Call
The conference call on the first quarter 2015 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 mortgage lending standards, the availability of
residential mortgage financing and mortgage foreclosure rates); material
prices and availability; subcontracted trade labor costs and
availability; changes in interest rates; inflation; our debt level,
including our ratio of debt to 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 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||(563,490||)||(430,548||)|
|Equity in income (loss) of unconsolidated joint ventures||(347||)||2,590|
|Homebuilding pretax income||8,816||9,201|
|Equity in income (loss) of unconsolidated joint ventures||414||(6||)|
|Financial services pretax income||1,683||1,562|
|Total pretax income||10,499||10,763|
|Income tax expense||(2,700||)||(200||)|
|Earnings per share:|
|Weighted average shares outstanding:|
|CONSOLIDATED BALANCE SHEETS|
(In Thousands — Unaudited)
|Cash and cash equivalents||$||545,641||$||356,366|
|Investments in unconsolidated joint ventures||73,502||79,441|
|Deferred tax assets, net||822,632||825,232|
|Liabilities and stockholders' equity|
|Accrued expenses and other liabilities||397,245||409,882|
|Total liabilities and stockholders' equity||$||4,989,857||$||4,757,550|
For the Three Months Ended
(In Thousands, Except Average Selling Price — Unaudited)
|Homebuilding costs and expenses:|
|Construction and land costs|
|Selling, general and administrative expenses||71,072||61,274|
|Depreciation and amortization||$||2,725||$||2,067|
|Amortization of previously capitalized interest||22,293||17,485|
|Average selling price:|
For the Three Months Ended
(Dollars in Thousands — Unaudited)
|Net order value:|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Three Months Ended
(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 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:
|Housing construction and land costs||(445,383||)||(362,106||)|
|Housing gross profits||79,458||78,021|
|Add: Amortization of previously capitalized interest||22,293||17,485|
|Land option contract abandonment charges||448||433|
|Adjusted housing gross profits||$||102,199||$||95,939|
|Housing gross profit margin as a percentage of housing revenues||15.1||%||17.7||
|Adjusted housing gross profit margin as a percentage of housing revenues||19.5||%||21.8||
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 amortization of previously capitalized interest 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 and enhances the comparability between periods. This non-GAAP financial measure isolates the impact that the amortization of previously capitalized interest and land option contract abandonments 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 the amortization of previously capitalized interest and land option contract abandonment charges. This financial measure assists management in making strategic decisions regarding product mix, product pricing and construction pace.
RECONCILIATION 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:
|Ratio of debt to capital||63.8||%||61.8||%|
|Less: Cash and cash equivalents and restricted cash||(573,625||)||(383,601||)|
|Ratio of net debt to capital||58.4||%||57.9||%|
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.
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