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TheStreet Open House

KB Home Reports 2012 Fourth Quarter And Full Year Results

Stock quotes in this article: KBH

KB Home (NYSE: KBH), one of the nation’s largest and most recognized homebuilders, today reported results for its fourth quarter and fiscal year ended November 30, 2012. Highlights and developments include the following:

Three Months Ended November 30, 2012

  • Revenues rose 20% to $578.2 million, compared to $479.9 million for the fourth quarter of 2011, driven by an increase in the number of homes delivered and a higher average selling price.
    • The Company delivered 2,122 homes, up 6% from the year-earlier quarter, primarily reflecting growth in the Company’s West Coast and Central homebuilding regions.
    • The overall average selling price increased to $270,700, up $32,300 or 14% from $238,400 in the year-earlier quarter, extending the Company’s trend of generating year-over-year improvement to 10 consecutive quarters. Sequentially, the Company’s overall average selling price increased 10% from $245,100 in the third quarter of 2012, reflecting increases in all of the Company’s homebuilding regions.
    • Compared to the year-earlier quarter, average selling prices were higher across all of the Company’s homebuilding regions with increases of up to 23%.
  • The Company’s homebuilding operating income improved to $15.6 million in the current quarter, up significantly from $.8 million posted in the year-earlier quarter which included a $6.6 million gain on loan guaranty. On a sequential basis, the Company’s homebuilding operating income increased by $4.7 million from $10.9 million in the third quarter of 2012. Homebuilding operating income for the current quarter increased by $21.2 million on a sequential basis, excluding a $16.5 million insurance recovery that favorably impacted the 2012 third quarter.
    • As a percentage of homebuilding revenues, homebuilding operating income was 2.7%, up 250 basis points from .2% in the fourth quarter of 2011. The current quarter percentage also improved slightly from 2.6% in the 2012 third quarter.
      • The housing gross profit margin was 14.2%, compared to 14.7% in the year-earlier quarter. Included in the current quarter were $5.6 million of inventory impairment and land option contract abandonment charges and a $2.6 million charge related to water intrusion repairs at certain of the Company’s communities in Florida. In 2011, the fourth quarter housing gross profit margin included $2.3 million of inventory-related charges.
        • The fourth quarter housing gross profit margin, excluding inventory impairment and land option contract abandonment charges, improved slightly to 15.2% in 2012 from 15.1% in 2011.
        • The current quarter housing gross profit margin decreased from the third quarter of 2012 largely due to the insurance recovery included in that quarter. Excluding this recovery, the 2012 fourth quarter housing gross profit margin improved from the 2012 third quarter.
      • While delivering more homes and generating higher homebuilding revenues, the Company reduced its selling, general and administrative expenses by $9.4 million, or 12%, to $66.2 million in the current quarter from $75.6 million in the same quarter a year ago.
        • Reflecting these results, the Company’s selling, general and administrative expenses as a percentage of housing revenues were 11.5% in the current quarter, improving by 440 basis points from a year ago and by 340 basis points from the 2012 third quarter. The current quarter percentage was the lowest it has been since the fourth quarter of 2007.
  • Interest expense was $16.0 million, compared to $12.3 million in the year-earlier quarter due to the Company’s higher average debt level and slightly higher average interest rate, which reflected the issuance of two series of senior notes in 2012, the proceeds of which were primarily used to repurchase other series of senior notes pursuant to two applicable tender offers.
  • The Company’s financial services operations generated pretax income of $3.1 million, compared to $22.8 million in the year-earlier quarter. The 2011 fourth quarter results included a gain of $19.8 million related to the wind down of a former unconsolidated mortgage banking joint venture.
  • Net income totaled $7.7 million, or $.10 per diluted share, compared to $13.9 million, or $.18 per diluted share, in the year-earlier quarter. The year-earlier quarter included the financial services gain and the gain on loan guaranty. Excluding the impact of these 2011 fourth quarter gains, which totaled $26.4 million, the Company’s 2012 fourth quarter net income improved by $20.2 million from the year-earlier quarter.
    • The Company’s fourth quarter net income included income tax benefits of $5.3 million in 2012 and $2.5 million in 2011.

Twelve Months Ended November 30, 2012

  • Revenues totaled $1.56 billion, up 19% from $1.32 billion for the prior year.
  • Homes delivered increased 8% to 6,282, up from 5,812 homes delivered in the previous year.
  • The overall average selling price of $246,500 was up 10% from $224,600 in 2011.
  • The Company’s operating loss of $20.3 million in 2012 improved substantially compared to an operating loss of $103.1 million in 2011.
  • The Company’s net loss of $59.0 million, or $.76 per diluted share, narrowed by $119.8 million from the net loss of $178.8 million, or $2.32 per diluted share, for the year ended November 30, 2011.

Backlog and Net Orders

  • Potential future housing revenues in backlog at November 30, 2012 rose to $618.6 million, up 35% from $459.0 million at November 30, 2011, with each of the Company’s four homebuilding regions posting a year-over-year increase.
    • The potential future housing revenues in backlog reached the highest fourth quarter-end level since 2007.
    • The number of homes in the Company’s backlog increased 20% to 2,577 at November 30, 2012 from 2,156 at November 30, 2011.
  • The overall value of net orders generated in the fourth quarter of 2012 grew to $459.3 million, up 25% from $368.6 million in the year-earlier quarter, which had experienced a sizable increase of 65% from the previous year.
    • Three of the Company’s four homebuilding regions reported year-over-year increases in net order value with the West Coast region up 38% to $259.2 million, the Central region up 13% to $98.7 million and the Southeast region up 13% to $70.4 million.
  • Net orders totaled 1,557 in the fourth quarter of 2012, up 4% compared to 1,494 in the year-earlier quarter which had increased 38% from the fourth quarter of 2010. The year-over-year net order comparison for 2012 was impacted by the Company’s lower community count. The Company had 191 new home communities open for sales at the end of the 2012 fourth quarter, down 18% from 234 at the end of the 2011 fourth quarter.
    • The year-over-year increase in the Company’s 2012 fourth quarter net orders reflected a 26% increase in the Company’s West Coast homebuilding region that was mostly offset by decreases in the Company’s other regions.
    • Although the Company posted only a modest improvement in overall net orders in the 2012 fourth quarter, its average net orders per community, which has generally been one of the highest in the industry, was 7.9 in the current quarter, up 23% from 6.4 in the year-earlier quarter.
    • The fourth quarter cancellation rate as a percentage of gross orders was 35% in 2012 and 34% in 2011. As a percentage of beginning backlog, the fourth quarter cancellation rate was 26% in 2012 and 29% in 2011.

Balance Sheet

  • Cash, cash equivalents and restricted cash totaled $567.1 million at November 30, 2012, up $87.6 million from $479.5 million at November 30, 2011.
    • The Company’s unrestricted cash and cash equivalents increased by $109.7 million to $524.8 million from $415.1 million at November 30, 2011.
    • The Company generated $110.4 million of positive net cash flow from operating activities in the fourth quarter of 2012, compared to $37.6 million of net cash used in operating activities in the fourth quarter of 2011.
    • For the full year of 2012, the Company generated positive net cash flow from operating activities for the first time since 2009.
  • Inventories totaled $1.71 billion at November 30, 2012 and $1.73 billion at November 30, 2011.
    • Land and land development investments totaled $564.9 million for the year ended November 30, 2012. The Company invested in land and land development in each of its homebuilding regions, with the majority occurring in California and Texas.
    • The Company owned or controlled 44,752 lots at November 30, 2012, an increase of 11% from 40,170 lots owned or controlled at November 30, 2011.
  • The Company’s debt balance of $1.72 billion at November 30, 2012 increased from $1.58 billion at November 30, 2011, reflecting the capital markets transactions completed during the year.
    • The Company’s next scheduled debt maturity is in 2014, when the remaining $76.0 million of its 5 3/4% senior notes become due.

Management Comments

“Our results for the fourth quarter reflect year-over-year and sequential improvement in most of our key operational and financial metrics,” said Jeffrey Mezger, president and chief executive officer. “We increased our deliveries and generated solid top-line growth, a higher housing gross profit margin and continued improvement in our selling, general and administrative expense ratio, all of which translated to higher homebuilding operating income. In addition to improved execution on our business strategies, we benefited from better housing market conditions and increased demand for larger homes with more design options, which drove our average selling prices higher in all of our regions. Although our fourth quarter community count decreased from the prior year and impacted our overall net order growth, our net orders on a per-community basis strengthened. By leveraging the investments in land and land development we have made and plan to make next year, we expect to significantly increase the number of new home communities we have open for sales in 2013.

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