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KB Home Q1 Profit Beats View; Shares Rise

KBHome 032015

Home builder KB Home (KBH) Friday reported a 26 percent decline in net profit for the first quarter from last year, as higher tax expenses and lower margins more than offset strong revenue growth. However, earnings surpasses analysts' expectations, sending the stock higher.

Jeffrey Mezger, president and chief executive officer said, "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."

The Los Angeles, California-based company reported first-quarter net income of $7.80 million or $0.08 per share, down from $10.56 million or $0.12 per share in the prior-year quarter.

On average, 18 analysts polled by Thomson Reuters expected the company to report profit per share of $0.02 for the quarter. Analysts' estimates typically exclude special items.

Total revenues for the quarter grew 29 percent to $580.12 million from $450.69 million in the same quarter last year, and topped analysts' consensus estimate of $474.90 million.

The increase in revenues were driven by growth in the company's housing and land sale revenues. The company also recorded higher home deliveries and selling prices during the period.

Home building revenues increased 29 percent from the year-ago period to $577.89 million. The company delivered 1,593 homes at an average selling price of $329,500 during the quarter, higher than 1,442 homes delivered at an average selling price of $305,200 in the year-ago quarter.

However, housing gross profit margin decreased 260 basis points from the prior-year period to 15.1 percent. The decline in gross margin reflects higher land and construction costs, start-up field costs on new home community openings and competitive pricing pressures, among other items.

Company-wide net orders for the quarter increased 24 percent to 2,189 homes, with net order value up 25 percent to $753.18 million.

Income tax expense for the quarter was $2.70 million, compared to $0.2 million in the year-ago period.

The company's backlog as at February 28, 2015 totaled 3,505 homes, up 22 percent from the same period last year. This represents potential future housing revenues of about $1.11 billion, up 30 percent from $851.6 million last year.

Looking ahead, Mezger said, "...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."

KBH is trading at $15.06, up 0.98 or 6.92 percent on a volume of 10.1 million shares.

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