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KB Home (NYSE: KBH), one of the nation’s largest and most recognized homebuilders, today reported results for its first quarter ended February 28, 2014. Highlights and developments include the following:
Three Months Ended February 28, 2014
Total revenues grew 11% to $450.7 million from $405.2 million in the year-earlier quarter, primarily on higher housing revenues.
Homebuilding revenues increased 45%, 18%, and 63% in the Company’s Southwest, Central and Southeast homebuilding regions, respectively, partly offset by a decrease of 12% in its West Coast homebuilding region.
The Company delivered 1,442 homes in the current quarter, compared to 1,485 homes delivered in the first quarter of 2013, as a decrease in the Company’s West Coast homebuilding region was mostly offset by increases in its other three homebuilding regions.
West Coast deliveries declined from the year-earlier quarter, primarily due to the region's lower backlog at the beginning of the quarter.
The overall average selling price of $305,200 rose $33,900, or 12%, from the year-earlier quarter, reflecting the Company’s strategic operational targeting of attractive, land-constrained locations that generally feature higher household incomes and demand for larger homes, as well as incremental revenues generated from lot premiums, options and upgrades, and generally favorable market conditions.
Average selling prices were higher in all four of the Company’s homebuilding regions compared to the year-earlier quarter, with increases ranging from 13% in its Central region to 30% in its West Coast region.
The significant increase in the Company’s West Coast region average selling price partly mitigated the impact fewer homes delivered had on revenues in the region.
The Company generated homebuilding operating income of $17.7 million, up from $.5 million in the year-earlier quarter. As a percentage of homebuilding revenues, operating income rose 390 basis points to 4.0%, compared to .1% for the 2013 first quarter.
The housing gross profit margin expanded 290 basis points to 17.7% from 14.8% for the year-earlier quarter, marking the Company’s highest first quarter housing gross profit margin since 2006.
Selling, general and administrative expenses as a percentage of housing revenues improved 80 basis points to 13.9% in the current quarter compared to 14.7% in the year-earlier quarter, primarily due to the Company’s higher year-over-year revenues and actions it has taken to contain costs.
This marked the Company’s lowest first quarter selling, general and administrative expense ratio since 2007.
Interest expense decreased to $11.3 million from $15.2 million in the year-earlier quarter, reflecting an increase in the amount of interest capitalized.
The Company’s financial services operations posted pretax income of $1.6 million, down from $2.7 million in the year-earlier quarter. The 2013 first quarter included income recognized in connection with the wind down of a former mortgage banking joint venture.
Net income increased to $10.6 million, or $.12 per diluted share, compared to a net loss of $12.5 million, or $.16 per diluted share, in the first quarter of 2013, mainly due to the Company’s higher revenues, expanded housing gross profit margin, and improved selling, general and administrative expense ratio.
The current quarter also included a gain of $3.2 million on the sale of the Company’s interest in an unconsolidated joint venture in Maryland.
The Company generated first quarter net income for the first time since 2007.
Backlog and Net Orders
Potential future housing revenues in backlog at February 28, 2014 increased 21% to $851.6 million from $703.9 million at February 28, 2013, reflecting both a greater number of homes in backlog and a higher average selling price.
The Company’s backlog was comprised of 2,880 homes at February 28, 2014, up 4% from 2,763 homes at February 28, 2013.
The overall value of net orders for the 2014 first quarter was $600.2 million, up 18% from $506.8 million for the year-earlier quarter. The current quarter increase was measured against the first quarter of 2013, when the net order value increased 83% from the prior year.
Each of the Company’s four homebuilding regions reported year-over-year growth in net order value, with increases ranging from 11% in its Southwest region to 27% in its Central region.
Net orders increased 6% from the year-earlier quarter to 1,765, reflecting a rise in the Company’s community count, as it continues to convert the substantial land investments it has made over the past several quarters to open communities.
The first quarter net order comparison was against a 2013 first quarter that had a 40% year-over-year increase in net orders.
Our average community count increased 10% to 190 from 172 for the year-earlier quarter.
The first quarter cancellation rate as a percentage of gross orders improved to 30% in 2014, compared to 32% in 2013. As a percentage of beginning backlog, the first quarter cancellation rate was 30% in both 2014 and 2013.
Cash, cash equivalents and restricted cash totaled $345.4 million at February 28, 2014, compared to $572.0 million at November 30, 2013.
The decline in total cash, cash equivalents and restricted cash was mainly due to the Company's continued investments in inventories to support future growth.
The Company had no borrowings outstanding under its $200 million unsecured revolving credit facility as of February 28, 2014.
Inventories increased to $2.63 billion at February 28, 2014 from $2.30 billion at November 30, 2013 as a result of land acquisition and development activities and a distribution of 549 acres, or $70.6 million, of land from Inspirada Builders, LLC, the Company's unconsolidated joint venture in Las Vegas.
Land and land development investments totaled $354.3 million for the three months ended February 28, 2014, as the Company continued to execute on its strategic initiatives designed to support future growth.
The Company’s investments in unconsolidated joint ventures decreased to $60.6 million at February 28, 2014 from $130.2 million at November 30, 2013, primarily due to the distribution of land from Inspirada Builders, LLC.
At February 28, 2014, the Company’s debt balance of $2.18 billion was essentially flat with the balance of $2.15 billion at November 30, 2013.
“We are pleased by our first quarter results,” said Jeffrey Mezger, president and chief executive officer. “Building on the momentum and the full-year profitability our business achieved in 2013, we posted net income in the first quarter for the first time since 2007, along with higher average selling prices, increased revenues, expanded gross margins and improved operating leverage. We believe this performance reflects the continued success of our strategic initiatives, and gives us a firm foundation to deliver on our financial objectives for the year.”