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Share Name | Share Symbol | Market | Type |
---|---|---|---|
KB Home | NYSE:KBH | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.88 | 1.36% | 65.64 | 67.36 | 64.425 | 64.81 | 861,702 | 00:41:09 |
Revenues Total $1.16 Billion Net Income of $68.1 Million, or $.73 Per Diluted Share Net Orders Increase 24%; Backlog Units Up 14%
KB Home (NYSE: KBH) today reported results for its third quarter ended August 31, 2019.
“We are extremely pleased with the strength of our third quarter results, led by a 24% rise in net orders, with double-digit increases in each of our four regions. Our net order growth was driven by both significant community count expansion and a higher absorption rate, a key operational metric where we have long been an industry leader,” said Jeffrey Mezger, chairman, president and chief executive officer. “Notably, during the quarter, we achieved a community absorption pace of 4.3 net orders per month, surpassing last year’s robust performance, while at the same time increasing prices in about 90% of our communities.”
“With year-over-year growth in both revenues and gross profit margin anticipated for our fourth quarter, we are on track for a strong finish to 2019, the third year of our Returns-Focused Growth Plan. As a result of the successful execution of this Plan, we have meaningfully increased our scale and profitability, and generated substantial operating cash flow that we have used to reinvest in our business and reduce our debt, two core components of our Plan. We expect to continue to grow our community count in 2020, and, together with our solid pace and $2.3 billion backlog, we believe we are well positioned for an excellent start to the new year.”
Three Months Ended August 31, 2019 (comparisons on a year-over-year basis)
Nine Months Ended August 31, 2019 (comparisons on a year-over-year basis)
Backlog and Net Orders (comparisons on a year-over-year basis)
Balance Sheet as of August 31, 2019 (comparisons to November 30, 2018)
Earnings Conference Call
The conference call to discuss the Company’s 2019 third 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 www.kbhome.com.
About KB Home
KB Home (NYSE: KBH) is one of the largest and most recognized homebuilders in the United States and has been building quality homes for over 60 years. Today, KB Home operates in 38 markets across eight states, serving a wide array of buyer groups. What sets us apart is giving our customers the ability to personalize their homes from homesites and floor plans to cabinets and countertops, at a price that fits their needs. And as the first builder ever to make every home we build ENERGY STAR® certified, KB Home is able to not only design thoughtful living spaces but ones that lower the cost of homeownership. We also work with our customers every step of the way, building strong personal relationships so they have a real partner in the homebuying process and the experience is as simple and easy as possible. 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 share repurchases pursuant to our board of directors’ authorization; 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; 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 that failure; 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; 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, including revenue recognition (ASC 606) and lease 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 Returns-Focused Growth Plan and achieve the associated revenue, margin, profitability, cash flow, community reactivation, land sales, business growth, asset efficiency, return on invested capital, return on equity, debt to capital ratio and other financial and operational targets and objectives; income tax expense volatility related to 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 Home Loans, LLC, our mortgage banking joint venture with Stearns Ventures, LLC; the process and outcome of the voluntary bankruptcy filing involving Stearns Ventures, LLC; information technology failures and data security breaches; 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 Nine Months Ended August 31, 2019 and 2018 (In Thousands, Except Per Share Amounts - Unaudited)
Three Months Ended August 31,
Nine Months Ended August 31,
2019
2018
2019
2018
Total revenues
$
1,160,786
$
1,225,347
$
2,994,072
$
3,198,393
Homebuilding:
Revenues
$
1,156,855
$
1,221,875
$
2,984,314
$
3,189,753
Costs and expenses
(1,071,380
)
(1,116,262
)
(2,815,401
)
(2,965,939
)
Operating income
85,475
105,613
168,913
223,814
Interest income
201
458
1,745
2,739
Equity in income (loss) of unconsolidated joint ventures
(384
)
3,493
(1,159
)
2,326
Homebuilding pretax income
85,292
109,564
169,499
228,879
Financial services:
Revenues
3,931
3,472
9,758
8,640
Expenses
(1,003
)
(945
)
(3,067
)
(2,855
)
Equity in income of unconsolidated joint ventures
3,716
2,585
7,018
4,365
Financial services pretax income
6,644
5,112
13,709
10,150
Total pretax income
91,936
114,676
183,208
239,029
Income tax expense
(23,800
)
(27,200
)
(37,600
)
(165,500
)
Net income
$
68,136
$
87,476
$
145,608
$
73,529
Earnings per share:
Basic
$
.77
$
.99
$
1.65
$
.83
Diluted
$
.73
$
.87
$
1.55
$
.75
Weighted average shares outstanding:
Basic
88,262
87,951
87,630
87,565
Diluted
92,842
101,072
94,032
101,213
KB HOME CONSOLIDATED BALANCE SHEETS (In Thousands - Unaudited)
August 31, 2019
November 30, 2018
Assets
Homebuilding:
Cash and cash equivalents
$
183,794
$
574,359
Receivables
291,492
292,830
Inventories
3,919,076
3,582,839
Investments in unconsolidated joint ventures
57,168
61,960
Property and equipment, net
64,119
24,283
Deferred tax assets, net
402,095
441,820
Other assets
85,515
83,100
5,003,259
5,061,191
Financial services
31,911
12,380
Total assets
$
5,035,170
$
5,073,571
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable
$
281,855
$
258,045
Accrued expenses and other liabilities
629,168
666,268
Notes payable
1,860,135
2,060,263
2,771,158
2,984,576
Financial services
1,783
1,495
Stockholders’ equity
2,262,229
2,087,500
Total liabilities and stockholders’ equity
$
5,035,170
$
5,073,571
KB HOME SUPPLEMENTAL INFORMATION For the Three Months and Nine Months Ended August 31, 2019 and 2018 (In Thousands, Except Average Selling Price - Unaudited)
Three Months Ended August 31,
Nine Months Ended August 31,
2019
2018
2019
2018
Homebuilding revenues:
Housing
$
1,152,618
$
1,219,620
$
2,968,588
$
3,177,928
Land
4,237
2,255
15,726
11,825
Total
$
1,156,855
$
1,221,875
$
2,984,314
$
3,189,753
Homebuilding costs and expenses:
Construction and land costs
Housing
$
939,538
$
999,499
$
2,443,937
$
2,631,634
Land
4,216
2,010
14,416
10,597
Subtotal
943,754
1,001,509
2,458,353
2,642,231
Selling, general and administrative expenses
127,626
114,753
357,048
323,708
Total
$
1,071,380
$
1,116,262
$
2,815,401
$
2,965,939
Interest expense:
Interest incurred
$
36,024
$
35,228
$
107,356
$
115,096
Interest capitalized
(36,024
)
(35,228
)
(107,356
)
(115,096
)
Total
$
—
$
—
$
—
$
—
Other information:
Amortization of previously capitalized interest
$
38,558
$
53,288
$
106,859
$
148,071
Depreciation and amortization
7,948
2,183
23,325
6,559
Average selling price:
West Coast
$
588,800
$
693,200
$
588,700
$
675,200
Southwest
318,400
308,300
323,700
306,800
Central
297,000
301,000
290,200
300,400
Southeast
294,000
283,300
296,400
280,800
Total
$
381,400
$
408,200
$
373,800
$
400,800
KB HOME SUPPLEMENTAL INFORMATION For the Three Months and Nine Months Ended August 31, 2019 and 2018 (Dollars in Thousands - Unaudited)
Three Months Ended August 31,
Nine Months Ended August 31,
2019
2018
2019
2018
Homes delivered:
West Coast
838
825
2,015
2,155
Southwest
566
636
1,615
1,724
Central
1,098
1,082
2,989
2,911
Southeast
520
445
1,323
1,138
Total
3,022
2,988
7,942
7,928
Net orders:
West Coast
957
724
2,797
2,500
Southwest
706
505
2,007
1,715
Central
1,132
986
3,556
3,329
Southeast
530
470
1,704
1,457
Total
3,325
2,685
10,064
9,001
Net order value:
West Coast
$
570,531
$
424,956
$
1,655,423
$
1,620,241
Southwest
219,930
167,247
632,498
544,448
Central
331,635
280,088
1,054,203
960,688
Southeast
154,146
145,787
488,893
427,763
Total
$
1,276,242
$
1,018,078
$
3,831,017
$
3,553,140
August 31, 2019
August 31, 2018
Homes
Value
Homes
Value
Backlog data:
West Coast
1,497
$
883,765
1,227
$
771,264
Southwest
1,318
412,391
1,079
343,093
Central
2,281
674,614
2,200
627,916
Southeast
1,134
326,027
978
293,070
Total
6,230
$
2,296,797
5,484
$
2,035,343
KB HOME 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 housing gross profit margin, adjusted income tax expense, adjusted net income, adjusted diluted earnings per share, adjusted effective tax rate 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 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 August 31,
Nine Months Ended August 31,
2019
2018
2019
2018
Housing revenues
$
1,152,618
$
1,219,620
$
2,968,588
$
3,177,928
Housing construction and land costs
(939,538
)
(999,499
)
(2,443,937
)
(2,631,634
)
Housing gross profits
213,080
220,121
524,651
546,294
Add: Inventory-related charges (a)
5,251
8,414
13,143
19,925
Housing gross profits excluding inventory-related charges
218,331
228,535
537,794
566,219
Add: Amortization of previously capitalized interest (b)
38,558
53,016
106,260
143,733
Adjusted housing gross profits
$
256,889
$
281,551
$
644,054
$
709,952
Housing gross profit margin
18.5
%
18.0
%
17.7
%
17.2
%
Housing gross profit margin excluding inventory-related charges
18.9
%
18.7
%
18.1
%
17.8
%
Adjusted housing gross profit margin
22.3
%
23.1
%
21.7
%
22.3
%
(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.
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 income, diluted earnings 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:
Nine Months Ended August 31,
2019
2018
As Reported
As Reported
TCJA Adjustment
As Adjusted
Total pretax income
$
183,208
$
239,029
$
—
$
239,029
Income tax expense (a)
(37,600
)
(165,500
)
111,200
(54,300
)
Net income
$
145,608
$
73,529
$
111,200
$
184,729
Diluted earnings per share
$
1.55
$
.75
$
1.84
Weighted average shares outstanding — diluted
94,032
101,213
101,213
Effective tax rate (a)
21
%
69
%
23
%
(a)
For the nine months ended August 31, 2019, income tax expense and the related effective tax rate primarily reflected the favorable impacts of $4.3 million of federal energy tax credits the Company earned from building energy-efficient homes, a $3.3 million reversal of a deferred tax asset valuation allowance and $2.9 million of excess tax benefits related to stock-based compensation. For the nine months ended August 31, 2018, income tax expense and adjusted income tax expense, as well as the related effective tax rate and adjusted effective tax rate, included the favorable impacts of $7.2 million of federal energy tax credits the Company earned from building energy-efficient homes and $3.0 million of excess tax benefits related to stock-based compensation.
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 non-cash charge of $111.2 million recorded in the 2018 first quarter from its reported income tax expense, net income, diluted earnings per share and effective tax rate, respectively. This charge was primarily due to the Company’s accounting re-measurement of its deferred tax assets based on the reduction in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018, under the TCJA. The most directly comparable GAAP financial measures are the Company’s income tax expense, net income, diluted earnings per share and effective tax rate. The Company believes these non-GAAP measures are meaningful to investors as they allow for an evaluation of the Company’s operating results without the impact of the TCJA-related charge.
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:
August 31, 2019
November 30, 2018
Notes payable
$
1,860,135
$
2,060,263
Stockholders’ equity
2,262,229
2,087,500
Total capital
$
4,122,364
$
4,147,763
Ratio of debt to capital
45.1
%
49.7
%
Notes payable
$
1,860,135
$
2,060,263
Less: Cash and cash equivalents
(183,794
)
(574,359
)
Net debt
1,676,341
1,485,904
Stockholders’ equity
2,262,229
2,087,500
Total capital
$
3,938,570
$
3,573,404
Ratio of net debt to capital
42.6
%
41.6
%
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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190925005240/en/
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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