KB Home (KBH, Financial) reported its first quarter earnings for the fiscal year 2015 on March 20, and the home builder was able to top the Street estimates both in terms of the top and bottom lines. Even the stock market reacted positively to the earnings release, sending the stock almost 9% higher in Friday’s trading session. Let’s quickly catch up with the major highlights of the first quarter of KB Home which reinforces the fact that home building industry is undergoing a quick revival phase in the U.S.
A quick quarter recap
For the quarter, KB Home reported net income of $7.8 million on earnings per share of $0.08 per share and revenue of $580.1 million. Interestingly, both revenue and earnings surpassed analyst estimates of $476.5 million in revenue and $0.02 per share in earnings, for the first quarter. The revenue growth of 29% year-over-year was majorly attributed to the higher land and housing revenues accumulated during the quarter that were in turn driven by higher average selling prices.
Housing revenue improved 19% year-over-year to $524.8 million driven by increase in selling prices of new homes by the builder. Land sale revenue also rose to $53 million from $8.1 million, majorly due to the sale of huge land positions in north California.
The value of net orders improved 25% to $753.2 million with increase in order value in all the four geographical regions – rise of 6%, 34%, 19.6% and 125% in the West Coast, West, Southeast and Southwest homebuilding regions, respectively. Backed by the higher number of homes in the backlog and appreciation of price, potential future backlog housing revenues increased 30% to $1.1 billion. The number of homes delivered during the quarter rose 10% from those delivered in the year-ago quarter.
Due to the strategic shift in product mix and influenced by favorable economic conditions in the company’s existing markets, average selling price for a home showed a decent hike of 8% year-over-year to $329,500.
However, the earnings showed a dip of about 26.4% from $10.6 million as net income recorded a year earlier. Earnings and net income of the company were hurt by rising home construction costs, including those linked with opening of communities.
Nevertheless, looking at the other key attributes shared during the earnings call, it can be concluded that the quarter was an exceptionally decent one for the Los Angeles based homebuilder.
Outlook is solid for the coming quarters
Though there has been a sluggish demand felt in South California, analysts are of the opinion that the combination of more homes available for sale and a reviving U.S. economy could easily spur a spring rebound in home sales. The company also feels optimistic on reaching out to the rising demand for houses in the busy spring season.
CEO Jeffrey Mezger stated in an interview, ‘Would-be buyers are coming back into the market after experiencing "sticker shock”… We have a consumer that is feeling pretty good in an economy that is getting better.” Besides improved interest of consumers towards buying new homes, the community count for KB Homes has also risen 25% from that seen a year back. Such attributes are expected to benefit the Westwood firm during the spring season down the road.
Based on the improvement noticed in the order count, backlog and the community count, the company now expects to witness significant earnings growth in the second half of the year 2015. The full year annual revenue from home building is expected to fall in the range of $2.8-$3.1 billion.
Last word
KB Home is one of the largest home builders in the U.S. earning better growth from the present revival of the housing industry. As consumers are signing deals of buying houses even after their price appreciation by the builder, it signifies the customer’s confidence in KB Home’s deliveries in the long run. The outlook given by the management also looks quite promising. Let’s stay tuned to keep watching the sales and profit growth curves of the home builder in the days to come.
