KB Home (KBH Quick QuoteKBH - Free Report) reported lackluster results in fourth-quarter fiscal 2022 (ended Nov 30, 2022). Both the earnings and revenues lagged the Zacks Consensus Estimate. Shares of this leading homebuilder plunged 2.11% in the after-market trading session on Jan 11.

On a year-over-year basis, both metrics increased on the back of measures undertaken to stimulate additional sales during the seasonally slower time frame.

Jeffrey Mezger, chairman, president and chief executive officer, stated, “While favorable demographics and a prolonged undersupply of homes give us confidence in the housing market's long-term outlook, current conditions remain challenging. High mortgage rates and persistent inflation, together with an uncertain economy, have made homebuyers more cautious since the middle of last year.”

Mezger added, “Depending on market dynamics and backlog levels in each community, we are getting more aggressive with our pricing ahead of the Spring selling season, in order to generate new orders. At the same time, with the industry-wide deceleration in housing starts compared to a year ago, we are also pursuing reductions in direct construction costs and build times, which should help to offset the impact of pricing adjustments we may take.”

Earnings & Revenue Discussion

KBH reported adjusted earnings of $2.47 per share, which missed the consensus estimate of $2.85 by 13.3% but increased 29% from the year-ago quarter’s figure of $1.91 per share. The upside was mainly backed by strong revenues and margin growth.

Total revenues of $1.94 billion lagged the consensus mark of $1.995 billion by 2.8% but increased 16% on a year-over-year basis.

Segment Details

Homebuilding: The segment's revenues of $1.93 billion increased 15.8% from the prior-year quarter’s levels. The number of homes delivered of 3,786 units was up 3% from the year-ago period’s levels. The average selling price, or ASP, increased 13% from a year ago to $510,400.

Net orders declined to just 692 units from the prior year’s level of 3,529 homes. The value of net orders also fell a whopping 79.5% from the year-ago quarter to $362.7 million. The average community count and the ending community count rose 11% and 13% from a year ago to 237 and 246, respectively.

The cancellation rate, as a percentage of gross orders, was 68% compared with 13% a year ago. Quarter-end backlog totaled 7,662 homes, down 27.3% from a year ago figure. Further, potential housing revenues from backlog declined 25.4% from the prior-year period to $3.69 billion.

Within homebuilding, housing gross margin (excluding inventory-related charges) improved 150 basis points (bps) year over year to 23.9%. The increase was attributed to a favorable pricing environment. This was partially offset by increased construction costs as well as the impacts of selective price adjustments and other concessions resulting from a softening housing market.

Selling, general and administrative expenses — as a percentage of housing revenues — improved 180 bps from the year-ago figure to 8%, thanks to lower external sales commissions, lower costs associated with certain performance-based employee compensation plans and increased operating leverage. Homebuilding’s operating margin (excluding inventory-related charges) increased 290 bps to 15.8%.

Financial Services: The segment's revenues rose 23.4% year over year to $7.5 million. Pretax income of $6.7 million, down from $9.9 million reported a year ago. This reflects a significant decline in the equity in income of its mortgage banking joint venture, KBHS Home Loans, LLC, and increased competitive pressures.

Fiscal 2022 Highlights

For fiscal 2022, KBH generated revenues of $6.9 billion, up 21% year over year. Earnings of $9.09 per share were also up 51% from fiscal 2021. Home deliveries increased 2% from a year ago period, on an 18% higher ASP.

Financial Position

KB Home had cash and cash equivalents of $328.5 million as of Nov 30, 2022, up from $290.8 million at fiscal 2021-end. The company had total liquidity of $1.26 billion, including $933.4 million of available capacity under the unsecured revolving credit facility.

Inventories increased 15% to $5.54 billion at the end of the fiscal 2022. As of fiscal 2022-end, the debt to capital ratio was 33.4%, up from 35.8% at fiscal 2021-end due to $153.5 million increased Notes payable.

In fiscal fourth-quarter 2022, it repurchased approximately 1.8 million shares of its outstanding common stock for $50 million. As of Nov 30, 2022, KBH had nearly $150 million remaining under repurchase authorization. Notably, its return on equity improved 470 bps to 24.6% from 19.9%.

First-Quarter Fiscal 2023 Guidance

The company expects housing revenues in the range of $1.25-$1.40 billion, compared with the year-ago figure of $1.39 billion. ASP is likely to be $490,000-$500,000 versus $486,100 reported a year ago. Homebuilding operating margin (assuming no inventory-related charges) is expected to be between 9.5% and 10.5%. This compares unfavorably with the year-ago figure of 12.2%.

Assuming no inventory-related charges, KB Home expects housing gross margin in the range of 20-21% versus 21.1% reported a year ago. SG&A expense, as a percentage of housing revenues, is likely to be 10.3%-10.8% (up from year-ago figure of 10.2%). It projects an effective tax rate of approximately 23%. The company expects average community count improvement in 15%-20% range.

For the full year, it anticipates housing revenues within $5-$6 billion range, down from fiscal 2022 level of $6.88 billion. Due to significantly uncertain 2023 housing market, and challenging macroeconomic and geopolitical conditions KB Home refrains to provide any other metrics guidance for the fiscal 2023.

Zacks Rank & Recent Construction Releases

KB Home currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lennar Corporation (LEN Quick QuoteLEN - Free Report) reported mixed fourth-quarter fiscal 2022 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same.

Pertaining to the quarterly release, Stuart Miller, executive chairman of Lennar, said, “As we have seen over the past quarters, interest rates are fluctuating and are likely to continue to move, and the housing market will continue to rebalance pricing and interest rates. While we have a clear-cut strategy of execution, as we look towards 2023, we will only give broad boundaries for deliveries and gross margin. For the first quarter of 2023, the range for deliveries will be between 12,000 to 13,500 homes and gross margin will be about 21%. For the full year 2023, the range for deliveries will be between 60,000 to 65,000 homes.”

RPM International Inc. (RPM Quick QuoteRPM - Free Report) reported tepid results in second-quarter fiscal 2023 (ended Nov 30, 2022). Its earnings met the Zacks Consensus Estimate and sales missed the same. On a year-over-year basis, both metrics grew on strong segmental sales.

During the quarter, the company introduced the MAP 2025 operating improvement program and is ahead of targets so far in the fiscal second quarter.

Acuity Brands, Inc. (AYI Quick QuoteAYI - Free Report) reported mixed first-quarter fiscal 2023 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Earnings beat the consensus mark in four consecutive quarters, while revenues missed the estimate after beating the same for the third straight quarter.

Nevertheless, earnings and revenues increased on a year-over-year basis. The upside was backed by product vitality and service in its lighting and space businesses.