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Why Is KB Home (KBH) Up 18.6% Since Last Earnings Report?
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A month has gone by since the last earnings report for KB Home (KBH - Free Report) . Shares have added about 18.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is KB Home due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
KB Home Q2 Earnings & Revenues Top Estimates
KB Home reported impressive results in the second quarter of fiscal 2024 (ended May 31, 2024). Both earnings and revenues beat the Zacks Consensus Estimate. On an encouraging note, earnings increased on a year-over-year basis despite a revenue decline.
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 of $2.15, which beat the consensus estimate of $1.78 by 20.8% and increased 11% from the year-ago quarter’s $1.94. The upside was mainly backed by the favorable impact of repurchases over the past several quarters.
Total revenues of $1.71 billion topped the consensus mark of $1.64 billion by 4.3% but decreased 3.4% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.7 billion fell 3.2% from the prior-year quarter’s level. The number of homes delivered was 3,523 units, down 3.9% from the year-ago period’s level. However, the average selling price, or ASP, increased 0.7% from a year ago to $483,000.
Net orders grew 1.5% to 3,997 units from the prior year. The value of net orders was up 6.8% from the year-ago quarter to $2.03 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 5.5 from 5.2.
The cancelation rate, as a percentage of gross orders, was 13% compared with 22% in the year-ago period.
The quarter-end backlog totaled 6,270 homes, down 13.9% from the year-ago figure of 7,286 units. Further, potential housing revenues from the backlog declined 9.8% from the prior-year period to $3.12 billion.
The average community count was down to 243 from 253, and the ending community count stood at 247 compared with 249 a year ago.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 20 basis points (bps) year over year to 21.2%.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — increased 50 bps from the year-ago figure to 10.1%, reflecting higher marketing and other expenses.
Homebuilding’s operating margin (excluding inventory-related charges) was down 60 bps to 11.1%.
Financial Services: The segment's revenues rose 11.1% year over year to $8.3 million. The pretax income was $13.3 million, up 16% from a year ago.
Financial Position
KB Home had cash and cash equivalents of $643.5 million as of May 31, 2024, down from $727.1 million reported at the end of fiscal 2023. The company had a total liquidity of $1.73 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. No cash borrowings were outstanding under the revolver on May 31, 2024.
As of the end of the fiscal second quarter, the debt-to-capital ratio improved to 29.8%, down from 30.7% at the end of 2023.
In the fiscal second quarter, it repurchased approximately 0.76 million shares of its outstanding common stock for $50 million. In fiscal 2023, KBH repurchased 9.2 million shares for $411.4 million. As of May 31, 2024, it had $950 million stock remaining under the repurchase authorization.
Fiscal 2024 Guidance
For the full year, it raised housing revenues expectation to the $6.70-$6.90 billion band from the $6.50-$6.90 billion range expected earlier. The estimated figure is up from the fiscal 2023 level of $6.37 billion. ASP is now estimated in the range of $485,000-$495,000 (up from a prior projection of $480,000-$490,000). Taking the midpoint of the guided range, the figure is up from $481,300 reported a year ago.
Assuming no inventory-related charges, KB Home now expects the housing gross margin between 21% and 21.5% (versus 21-21.4% projected earlier), down from 21.4% reported a year ago. Homebuilding’s operating margin (assuming no inventory-related charges) is now expected in the band of 11-11.4% versus 10.9-11.3% expected earlier. In fiscal 2023, it was 11.3%.
SG&A expenses, as a percentage of housing revenues, are now likely to be 10.1% compared with 10.2% anticipated earlier. It still projects an effective tax rate of approximately 23%. The company expects the ending community count to be within 250-255.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
At this time, KB Home has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
KB Home has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
KB Home is part of the Zacks Building Products - Home Builders industry. Over the past month, Lennar (LEN - Free Report) , a stock from the same industry, has gained 11.9%. The company reported its results for the quarter ended May 2024 more than a month ago.
Lennar reported revenues of $8.77 billion in the last reported quarter, representing a year-over-year change of +9%. EPS of $3.38 for the same period compares with $2.94 a year ago.
Lennar is expected to post earnings of $3.66 per share for the current quarter, representing a year-over-year change of -6.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.9%.
Lennar has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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Why Is KB Home (KBH) Up 18.6% Since Last Earnings Report?
A month has gone by since the last earnings report for KB Home (KBH - Free Report) . Shares have added about 18.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is KB Home due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
KB Home Q2 Earnings & Revenues Top Estimates
KB Home reported impressive results in the second quarter of fiscal 2024 (ended May 31, 2024). Both earnings and revenues beat the Zacks Consensus Estimate. On an encouraging note, earnings increased on a year-over-year basis despite a revenue decline.
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 of $2.15, which beat the consensus estimate of $1.78 by 20.8% and increased 11% from the year-ago quarter’s $1.94. The upside was mainly backed by the favorable impact of repurchases over the past several quarters.
Total revenues of $1.71 billion topped the consensus mark of $1.64 billion by 4.3% but decreased 3.4% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.7 billion fell 3.2% from the prior-year quarter’s level. The number of homes delivered was 3,523 units, down 3.9% from the year-ago period’s level. However, the average selling price, or ASP, increased 0.7% from a year ago to $483,000.
Net orders grew 1.5% to 3,997 units from the prior year. The value of net orders was up 6.8% from the year-ago quarter to $2.03 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 5.5 from 5.2.
The cancelation rate, as a percentage of gross orders, was 13% compared with 22% in the year-ago period.
The quarter-end backlog totaled 6,270 homes, down 13.9% from the year-ago figure of 7,286 units. Further, potential housing revenues from the backlog declined 9.8% from the prior-year period to $3.12 billion.
The average community count was down to 243 from 253, and the ending community count stood at 247 compared with 249 a year ago.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 20 basis points (bps) year over year to 21.2%.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — increased 50 bps from the year-ago figure to 10.1%, reflecting higher marketing and other expenses.
Homebuilding’s operating margin (excluding inventory-related charges) was down 60 bps to 11.1%.
Financial Services: The segment's revenues rose 11.1% year over year to $8.3 million. The pretax income was $13.3 million, up 16% from a year ago.
Financial Position
KB Home had cash and cash equivalents of $643.5 million as of May 31, 2024, down from $727.1 million reported at the end of fiscal 2023. The company had a total liquidity of $1.73 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. No cash borrowings were outstanding under the revolver on May 31, 2024.
As of the end of the fiscal second quarter, the debt-to-capital ratio improved to 29.8%, down from 30.7% at the end of 2023.
In the fiscal second quarter, it repurchased approximately 0.76 million shares of its outstanding common stock for $50 million. In fiscal 2023, KBH repurchased 9.2 million shares for $411.4 million. As of May 31, 2024, it had $950 million stock remaining under the repurchase authorization.
Fiscal 2024 Guidance
For the full year, it raised housing revenues expectation to the $6.70-$6.90 billion band from the $6.50-$6.90 billion range expected earlier. The estimated figure is up from the fiscal 2023 level of $6.37 billion. ASP is now estimated in the range of $485,000-$495,000 (up from a prior projection of $480,000-$490,000). Taking the midpoint of the guided range, the figure is up from $481,300 reported a year ago.
Assuming no inventory-related charges, KB Home now expects the housing gross margin between 21% and 21.5% (versus 21-21.4% projected earlier), down from 21.4% reported a year ago. Homebuilding’s operating margin (assuming no inventory-related charges) is now expected in the band of 11-11.4% versus 10.9-11.3% expected earlier. In fiscal 2023, it was 11.3%.
SG&A expenses, as a percentage of housing revenues, are now likely to be 10.1% compared with 10.2% anticipated earlier. It still projects an effective tax rate of approximately 23%. The company expects the ending community count to be within 250-255.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
At this time, KB Home has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
KB Home has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
KB Home is part of the Zacks Building Products - Home Builders industry. Over the past month, Lennar (LEN - Free Report) , a stock from the same industry, has gained 11.9%. The company reported its results for the quarter ended May 2024 more than a month ago.
Lennar reported revenues of $8.77 billion in the last reported quarter, representing a year-over-year change of +9%. EPS of $3.38 for the same period compares with $2.94 a year ago.
Lennar is expected to post earnings of $3.66 per share for the current quarter, representing a year-over-year change of -6.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.9%.
Lennar has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.