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Why Is KB Home (KBH) Down 2.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for KB Home (KBH - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is KB Home due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
KB Home Q4 Earnings & Revenues Top, Orders Up 176%
KB Home reported better-than-expected results in fourth-quarter fiscal 2023 (ended Nov 30, 2023). Both the earnings and revenues beat the Zacks Consensus Estimate. With this, the company’s earnings and revenues surpassed the consensus mark in four consecutive quarters.
Looking forward to the first quarter and the entirety of 2024, KBH foresees enhanced conditions in the housing market and ongoing positive trends in the supply chain. Leveraging the advantages of its Built to Order model, which provides buyers with choices, flexibility, and affordability, the company is confident in its ability to effectively navigate potential fluctuations in housing market conditions.
Earnings & Revenue Discussion
KBH reported adjusted earnings per share (EPS) of $1.85, which topped the consensus estimate of $1.69 by 9.5%. In the year-ago period, the company reported EPS of $2.47.
Total revenues of $1.67 billion also beat the consensus mark of $1.61 billion by 4.1% but decreased 13.7% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.66 billion decreased 13.8% from the prior-year quarter’s levels. The number of homes delivered was 3,407 units, down 10% from the year-ago period’s levels. However, the average selling price, or ASP, declined 5% from a year ago to $487,300.
The most notable observation in the quarter was the order growth rate. Net orders grew 176% to 1,909 units from the prior year. The value of net orders was up 157% from the year-ago quarter to $932.6 billion, depicting improved demand conditions and a lower cancelation rate compared with the year-ago period. Absorption or monthly net orders per community increased to 2.7 from 1.
The cancelation rate, as a percentage of gross orders, was 28% compared with 68% in the year-ago period. In the prior quarter, it was 21%.
Quarter-end backlog totaled 5,510 homes, down 28% from the year-ago figure. Further, potential housing revenues from backlog declined 28% from the prior-year period to $2.67 billion.
The average community count was 236 and the ending community count declined 2% from the year-ago period to 242.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 310 bps year over year to 20.8%. The decrease was due to lower pricing and other homebuyer concessions and higher construction costs.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — increased 190 bps from the year-ago figure to 9.9% owing to reduced operating leverage from lower housing revenues and higher sales commissions. Homebuilding’s operating margin (excluding inventory-related charges) was down 490 bps to 10.9%.
Financial Services: The segment's revenues rose 19.2% year over year to $7.3 million. Pretax income was $12.2 million, up from $6.7 million reported a year ago.
Fiscal 2023 Highlights
Total revenues were $6.41 billion, down from $6.9 billion. Housing revenues were $6.37 billion, down from $6.88 billion in fiscal 2022. Earnings were $7.03 per share, down from $9.09 in fiscal 2022.
Total homes delivered were 13,236 units in fiscal 2023, down from $13,738 in fiscal 2022. Housing gross margin (excluding inventory-related charges) was 21.4%, down from 24.8% in fiscal 2022.
Financial Position
KB Home had cash and cash equivalents of $727.1 million as of Nov 30, 2023, up from $328.5 million at the fiscal 2022-end. The company had a total liquidity of $1.81 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. Notably, no cash borrowings were outstanding under the revolver on Nov 30, 2023.
As of the end of fiscal 2023, the debt-to-capital ratio was 30.7%, down from 33.4% at the fiscal 2022-end.
In the fiscal fourth quarter of 2023, it repurchased approximately 3.6 million shares of its outstanding common stock for $161.8 million. In fiscal 2023, KBH repurchased 9.2 million shares for $411.4 million.
Q1 2024 Guidance
For the fiscal first quarter, KBH expects to generate housing revenues in the range of $1.4 billion-$1.5 billion. The average selling price is expected to be approximately $477,000. Homebuilding operating income margin will be approximately 10.5%. Housing gross margin for the quarter is expected to be 21%. SG&A ratio is expected to be 10.5%, up from 10.1% in the year-earlier quarter, mainly reflecting higher costs, including marketing and advertising expenses associated with the planned increase in community contracts in the year. It expects the effective tax rate for the quarter to be approximately 24%.
Fiscal 2024 Guidance
For the full year, it anticipates housing revenues between $6.40 and $6.80 billion, up from the fiscal 2023 level of $6.37 billion. ASP is likely to be $480,000-$490,000, up from $481,300 reported a year ago (taking the midpoint of the guided range).
Homebuilding’s operating margin (assuming no inventory-related charges) is expected to be 11%. In fiscal 2023, it was 11.3%.
Assuming no inventory-related charges, KB Home expects the housing gross margin to be approximately 21%, down from 21.4% reported a year ago.
SG&A expenses, as a percentage of housing revenues, are likely to be 10% versus 9.9% reported in fiscal 2023. It projects an effective tax rate of approximately 24%. The company expects the average community count to increase 5% and the ending community count to be roughly 270.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 5.64% due to these changes.
VGM Scores
At this time, KB Home has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, KB Home has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is KB Home (KBH) Down 2.8% Since Last Earnings Report?
It has been about a month since the last earnings report for KB Home (KBH - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is KB Home due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
KB Home Q4 Earnings & Revenues Top, Orders Up 176%
KB Home reported better-than-expected results in fourth-quarter fiscal 2023 (ended Nov 30, 2023). Both the earnings and revenues beat the Zacks Consensus Estimate. With this, the company’s earnings and revenues surpassed the consensus mark in four consecutive quarters.
Looking forward to the first quarter and the entirety of 2024, KBH foresees enhanced conditions in the housing market and ongoing positive trends in the supply chain. Leveraging the advantages of its Built to Order model, which provides buyers with choices, flexibility, and affordability, the company is confident in its ability to effectively navigate potential fluctuations in housing market conditions.
Earnings & Revenue Discussion
KBH reported adjusted earnings per share (EPS) of $1.85, which topped the consensus estimate of $1.69 by 9.5%. In the year-ago period, the company reported EPS of $2.47.
Total revenues of $1.67 billion also beat the consensus mark of $1.61 billion by 4.1% but decreased 13.7% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.66 billion decreased 13.8% from the prior-year quarter’s levels. The number of homes delivered was 3,407 units, down 10% from the year-ago period’s levels. However, the average selling price, or ASP, declined 5% from a year ago to $487,300.
The most notable observation in the quarter was the order growth rate. Net orders grew 176% to 1,909 units from the prior year. The value of net orders was up 157% from the year-ago quarter to $932.6 billion, depicting improved demand conditions and a lower cancelation rate compared with the year-ago period. Absorption or monthly net orders per community increased to 2.7 from 1.
The cancelation rate, as a percentage of gross orders, was 28% compared with 68% in the year-ago period. In the prior quarter, it was 21%.
Quarter-end backlog totaled 5,510 homes, down 28% from the year-ago figure. Further, potential housing revenues from backlog declined 28% from the prior-year period to $2.67 billion.
The average community count was 236 and the ending community count declined 2% from the year-ago period to 242.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 310 bps year over year to 20.8%. The decrease was due to lower pricing and other homebuyer concessions and higher construction costs.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — increased 190 bps from the year-ago figure to 9.9% owing to reduced operating leverage from lower housing revenues and higher sales commissions. Homebuilding’s operating margin (excluding inventory-related charges) was down 490 bps to 10.9%.
Financial Services: The segment's revenues rose 19.2% year over year to $7.3 million. Pretax income was $12.2 million, up from $6.7 million reported a year ago.
Fiscal 2023 Highlights
Total revenues were $6.41 billion, down from $6.9 billion. Housing revenues were $6.37 billion, down from $6.88 billion in fiscal 2022. Earnings were $7.03 per share, down from $9.09 in fiscal 2022.
Total homes delivered were 13,236 units in fiscal 2023, down from $13,738 in fiscal 2022. Housing gross margin (excluding inventory-related charges) was 21.4%, down from 24.8% in fiscal 2022.
Financial Position
KB Home had cash and cash equivalents of $727.1 million as of Nov 30, 2023, up from $328.5 million at the fiscal 2022-end. The company had a total liquidity of $1.81 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. Notably, no cash borrowings were outstanding under the revolver on Nov 30, 2023.
As of the end of fiscal 2023, the debt-to-capital ratio was 30.7%, down from 33.4% at the fiscal 2022-end.
In the fiscal fourth quarter of 2023, it repurchased approximately 3.6 million shares of its outstanding common stock for $161.8 million. In fiscal 2023, KBH repurchased 9.2 million shares for $411.4 million.
Q1 2024 Guidance
For the fiscal first quarter, KBH expects to generate housing revenues in the range of $1.4 billion-$1.5 billion. The average selling price is expected to be approximately $477,000. Homebuilding operating income margin will be approximately 10.5%. Housing gross margin for the quarter is expected to be 21%. SG&A ratio is expected to be 10.5%, up from 10.1% in the year-earlier quarter, mainly reflecting higher costs, including marketing and advertising expenses associated with the planned increase in community contracts in the year. It expects the effective tax rate for the quarter to be approximately 24%.
Fiscal 2024 Guidance
For the full year, it anticipates housing revenues between $6.40 and $6.80 billion, up from the fiscal 2023 level of $6.37 billion. ASP is likely to be $480,000-$490,000, up from $481,300 reported a year ago (taking the midpoint of the guided range).
Homebuilding’s operating margin (assuming no inventory-related charges) is expected to be 11%. In fiscal 2023, it was 11.3%.
Assuming no inventory-related charges, KB Home expects the housing gross margin to be approximately 21%, down from 21.4% reported a year ago.
SG&A expenses, as a percentage of housing revenues, are likely to be 10% versus 9.9% reported in fiscal 2023. It projects an effective tax rate of approximately 24%. The company expects the average community count to increase 5% and the ending community count to be roughly 270.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 5.64% due to these changes.
VGM Scores
At this time, KB Home has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, KB Home has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.