KB Home Reports 2018 First Quarter Results
Revenues Up 6% to
Net Order Value Grows 8% to
"Our solid start to the year reflects our effective operational
execution as well as strong housing demand and a limited inventory of
homes available for sale in many of our served markets," said
"For the remainder of 2018, we plan to continue to execute on our Returns-Focused Growth Plan, and expect to benefit from favorable housing market dynamics," said Mezger. "In particular, we believe our long history of primarily serving first-time homebuyers, along with offering products designed to meet their needs, will enable us to continue to successfully attract millennials, which currently represent the nation's largest and fastest growing demand segment. Moreover, we anticipate our housing gross profit margin will continue to strengthen throughout the year as we deliver more homes from newer, higher-margin communities, realize additional improvements from our community-specific action plans, and generate greater operating leverage. With good sales momentum across our business, and a considerable number of planned new openings on the horizon, we believe we are on track to end 2018 with a slightly higher community count and are well positioned operationally and strategically for the opportunities ahead."
Three Months Ended
Total revenues increased 6% to
- Deliveries were flat at 2,223 homes.
Average selling price rose 7% to
Homebuilding operating income grew 74% to
Homebuilding operating income margin increased 200 basis points to
5.1% from 3.1%. Excluding inventory-related charges of
$5.0 millionin the current quarter and $4.0 millionin the year-earlier quarter, the homebuilding operating income margin also improved 200 basis points to 5.6%, from 3.6%.
Housing gross profit margin expanded 150 basis points to 16.1%.
- Housing gross profit margin excluding inventory-related charges increased 160 basis points to 16.7%.
- Adjusted housing gross profit margin, a metric that excludes inventory-related charges and the amortization of previously capitalized interest, rose 150 basis points to 21.4%.
- Selling, general and administrative expenses as a percentage of housing revenues improved 50 basis points to 11.0%, a first quarter record low. This marks the seventh consecutive quarter in which the Company has achieved such a record.
- Housing gross profit margin expanded 150 basis points to 16.1%.
- Homebuilding operating income margin increased 200 basis points to 5.1% from 3.1%. Excluding inventory-related charges of
All interest incurred was capitalized, resulting in no interest
expense, compared to
$6.3 millionof interest expense, which included a $5.7 millioncharge for the early extinguishment of debt.
Total pretax income increased 115% to
The Company's income tax expense of
$117.3 millionand effective tax rate of approximately 255% reflected a one-time, non-cash charge of $111.2 millionfor the impact of the recently enacted Tax Cuts and Jobs Act ("TCJA"), which included the accounting re-measurement of the Company's deferred tax assets based on the reduction in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018.
Excluding this charge, the Company's adjusted income tax expense
and adjusted effective tax rate were
$6.1 millionand approximately 13%, respectively. In addition to the reduction in the federal corporate income tax rate, the adjusted income tax expense and adjusted effective tax rate reflected the favorable impacts of $4.0 millionof federal energy tax credits the Company earned from building energy efficient homes, and $2.2 millionof excess tax benefits from stock-based compensation as a result of the Company's adoption of a new accounting standard related to share-based payments. Without these credits and benefits, the Company's adjusted effective tax rate would have approximated 27%.
In the 2017 first quarter, the Company's income tax expense and
effective tax rate of
$7.2 millionand approximately 34%, respectively, included the favorable impact of $1.1 millionof federal energy tax credits.
- Excluding this charge, the Company's adjusted income tax expense and adjusted effective tax rate were
As a result of the one-time, non-cash charge for the TCJA impact, the
Company reported a net loss of
$71.3 million, or $.82per diluted share. Excluding this charge, the Company's adjusted net income was $39.9 million, or $.40per diluted share, compared to net income of $14.3 million, or $.15per diluted share.
Net order value rose 8% to
$1.17 billionon an 8% increase in net orders to 2,784. Three of the Company's four regions posted year-over-year increases in net order value.
- Company-wide, net orders per community averaged 4.2 per month, up 17% from 3.6 per month.
Ending backlog value grew 10% to
$1.97 billion, with all regions posting year-over-year increases. This was the Company's highest first quarter backlog value in 11 years. The number of homes in backlog increased 4% to 4,972.
- The cancellation rate as a percentage of gross orders improved to 20% from 23%.
- Average community count decreased 7% to 222. Ending community count was down 9% to 219.
Balance Sheet as of
The Company had total liquidity of
$1.02 billion, including cash and cash equivalents of $560.3 million.
Net cash used in operating activities was
$141.7 millionfor the quarter, compared to $77.0 million.
- There were no cash borrowings outstanding under the Company's unsecured revolving credit facility.
- Net cash used in operating activities was
Inventories increased 5% to
Investments in land acquisition and development totaled
$465.0 millionfor the quarter.
- Lots owned or controlled totaled 46,219, of which 79% were owned.
- Investments in land acquisition and development totaled
Notes payable increased slightly to
$2.36 billionfrom $2.32 billion.
- The ratio of debt to capital was 56.0%, while the ratio of net debt to capital was 49.3%, within the Company's 2019 target range under its Returns-Focused Growth Plan.
Stockholders' equity of
$1.85 billiondecreased by $73.6 milliondue to the one-time, non-cash TCJA-related charge.
Earnings Conference Call
The conference call to discuss the Company's first quarter 2018 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;
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; government actions, policies, programs and
regulations directed at or affecting the housing market (including the
TCJA, 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; changes in existing tax laws or enacted
corporate income tax rates, including those resulting from regulatory
guidance and interpretations issued with respect to the TCJA; 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, gaining share and scale in our served markets; our
operational and investment concentration in markets in
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
(In Thousands, Except Per Share Amounts - Unaudited)
Three Months Ended
|Costs and expenses||(825,202||)||(790,969||)|
|Equity in income (loss) of unconsolidated joint ventures||(845||)||731|
|Homebuilding pretax income||44,161||19,899|
|Equity in income of unconsolidated joint ventures||419||29|
|Financial services pretax income||1,884||1,560|
|Total pretax income||46,045||21,459|
|Income tax expense||(117,300||)||(7,200||)|
|Net income (loss)||$||(71,255||)||$||14,259|
|Earnings (loss) per share:|
|Weighted average shares outstanding:|
CONSOLIDATED BALANCE SHEETS
(In Thousands - Unaudited)
|Cash and cash equivalents||$||560,255||$||720,630|
|Investments in unconsolidated joint ventures||68,176||64,794|
|Deferred tax assets, net||516,569||633,637|
|Liabilities and stockholders' equity|
|Accrued expenses and other liabilities||551,069||575,930|
|Total liabilities and stockholders' equity||$||4,957,101||$||5,041,515|
For the Three Months Ended
(In Thousands, Except Average Selling Price - Unaudited)
Three Months Ended
|Homebuilding costs and expenses:|
|Construction and land costs|
|Selling, general and administrative expenses||95,724||92,889|
|Loss on early extinguishment of debt||—||5,685|
|Depreciation and amortization||$||2,180||$||2,467|
|Amortization of previously capitalized interest||42,350||39,384|
|Average selling price:|
For the Three Months Ended
(Dollars in Thousands - Unaudited)
Three Months Ended
|Net order value:|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Thousands, Except Percentages and Per Share Amounts - 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 income tax expense, adjusted net income, adjusted diluted earnings per share, adjusted effective tax rate, adjusted housing gross profit margin, and ratio of net debt to capital, none of which are 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 Income Tax Expense, Adjusted Net Income, Adjusted Diluted Earnings Per Share and Adjusted Effective Tax Rate
The following table reconciles the Company's income tax expense, net loss, diluted loss per share and effective tax rate calculated in accordance with GAAP to the non-GAAP financial measures of adjusted income tax expense, adjusted net income, adjusted diluted earnings per share and adjusted effective tax rate, respectively:
Three Months Ended
|As Adjusted||As Reported|
|Total pretax income||$||46,045||$||—||$||46,045||$||21,459|
|Income tax expense (a)||(117,300||)||111,200||(6,100||)||(7,200||)|
|Net income (loss)||$||(71,255||)||$||111,200||$||39,945||$||14,259|
|Diluted earnings (loss) per share||$||(.82||)||$||.40||$||.15|
|Weighted average shares outstanding — diluted||87,155||101,401||96,273|
|Effective tax rate (a)||255||%||13||%||34||%|
For the three months ended
The Company's adjusted income tax expense, adjusted net income, adjusted
diluted earnings per share and adjusted effective tax rate are non-GAAP
financial measures, which the Company calculates by excluding a
one-time, non-cash charge of
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
|Housing construction and land costs||(727,080||)||(692,787||)|
|Housing gross profits||139,460||118,160|
|Add: Inventory-related charges (a)||4,985||4,008|
|Housing gross profits excluding inventory-related charges||144,445||122,168|
|Add: Amortization of previously capitalized interest (b)||41,369||38,873|
|Adjusted housing gross profits||$||185,814||$||161,041|
|Housing gross profit margin||16.1||%||14.6||%|
|Housing gross profit margin excluding inventory-related charges||16.7||%||15.1||%|
|Adjusted housing gross profit margin||21.4||%||19.9||%|
|(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:
|Ratio of debt to capital||56.0||%||54.7||%|
|Less: Cash and cash equivalents||(560,255||)||(720,630||)|
|Ratio of net debt to capital||49.3||%||45.4||%|
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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