KB Home Q3 Profit Tops View, But Revenues Miss

(RTTNews) - Home builder KB Home (KBH) reported Tuesday a profit for the third quarter that soared from last year, reflecting improved home margins and home building revenue growth amid higher average selling prices. Earnings per share topped analysts' expectations, while quarterly revenues missed their revenues.

The company noted that it expects steady upward demand for housing as consumers adjust to both higher mortgage interest rates and pricing, with the fundamentals of the current housing recovery being firm.

"The momentum we have built in our business continued to fuel our financial performance in the third quarter as we generated strong revenue, net income and earnings per share results. We are clearly seeing meaningful top-line and bottom-line benefits from our strategy of investing in attractive land positions across the country, primarily targeting locations with limited housing inventory and higher household incomes," President and CEO Jeffrey Mezger said.

The Los Angeles, California-based company reported net income of $27.28 million or $0.30 per share for the third quarter, sharply higher than $3.26 million or $0.04 per share in the prior-year quarter.

On average, 24 analysts polled by Thomson Reuters expected the company to report earnings of $0.21 per share for the quarter. Analysts' estimate typically excludes one-time items.

Total revenues for the quarter grew 29 percent to $548.97 million from $424.50 million in the same quarter last year, but missed eighteen Wall Street analysts' consensus estimate of $569.64 million.

Home building revenues also increased 29.5 percent to $545.80 million, reflecting over 25 percent year-over-year revenue growth in each of the company's home building regions amid higher home deliveries and improved average selling prices.

The company delivered 1,825 homes at an average selling price of $299,100 in the during the third quarter, compared to 1,720 homes delivered at an average selling price of $245,100 in the year-ago quarter.

Home building operating margins improved by 400 basis points to 6.6 percent as gross margin also expanded 150 basis points and selling, general and administrative expenses as a percentage of home building revenues declined 250 basis points.

Homes deliveries have now increased in the eighth consecutive quarter, and overall average selling price has improved for the thirteenth consecutive quarter. The company noted that the higher average selling price reflected the company's strategic repositioning initiatives and its continued emphasis on pricing discipline to drive profitability.

Company-wide net orders for the quarter decreased 9 percent to 1,736 homes. Backlog as at August 31 totaled 3,039 homes, representing potential future housing revenues of about $808 million, up 9 percent from $745 million last year.

Looking ahead, Mezger said, "The fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy and positive demographic trends."

Mezger added that the company expects to see steady upward demand for housing as consumers adjust to both higher mortgage interest rates and pricing. He believes that there is tremendous potential in the company's served markets and that it is well-positioned for future growth.

In Tuesday's regular trading session, KBH is currently trading at $16.92, down $0.11 or 0.65% on a volume of 3.18 million shares. In the past 52-week period, the stock has been trading in a range of $13.09 to $25.14.