Yahoo Finance KB Home (KBH) Down 12% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for KB Home (KBH). Shares have lost about 12% 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 the most recent earnings report in order to get a better handle on the important drivers.
KB Home Q1 Earnings & Revenues Beat, Margins Down
KB Home reported better-than-expected results in first-quarter fiscal 2024 (ended Feb 29, 2024). Both earnings and revenues beat the Zacks Consensus Estimate and rose on a year-over-year basis.
Looking forward to the second quarter and full-year 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 of $1.76, which beat the consensus estimate of $1.56 by 12.8% and increased 21% from the year-ago quarter’s $1.45. The upside was mainly backed by the favorable impact of repurchases over the past several quarters.
Total revenues of $1.47 billion beat the consensus mark of $1.45 billion by 1.2% and increased 6% on a year-over-year basis.
Segment Details
Homebuilding: The segment's revenues of $1.46 billion increased 6% from the prior-year quarter’s level. The number of homes delivered was 3,037 units, up 9% from the year-ago period’s level. However, the average selling price, or ASP, declined 2.9% from a year ago to $480,100.
The most notable observation in the quarter was the order growth rate. Net orders grew 55% to 3,323 units from the prior year. The value of net orders was up 58% from the year-ago quarter to $1.58 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 4.6 from 2.8.
The cancelation rate, as a percentage of gross orders, was 14% compared with 36% in the year-ago period.
Quarter-end backlog totaled 5,796 homes, down from the year-ago figure of 7,016 units. Further, potential housing revenues from backlog declined 15.8% from the prior-year period to $2.79 billion. The average community count was down 4% to 240 and the ending community count declined 7% from the year-ago period to 238.
Within homebuilding, the housing gross margin (excluding inventory-related charges) declined 20 basis points (bps) year over year to 21.6%.
Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — increased 70 bps from the year-ago figure to 10.8%, reflecting higher marketing, advertising and other expenses. Homebuilding’s operating margin (excluding inventory-related charges) was down 80 bps to 11.7%.
Financial Services: The segment's revenues rose 5% year over year to $6.07 million. Pretax income was $11.6 million, up from $6 million reported a year ago.
Financial Position
KB Home had cash and cash equivalents of $668.1 million as of Feb 29, 2024, down from $727.1 million reported at the end of 2023. The company had a total liquidity of $1.75 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. Notably, no cash borrowings were outstanding under the revolver on Feb 29, 2024.
As of the end of the fiscal first quarter, the debt-to-capital ratio was 30.4%, down from 30.7% at the end of 2023.
In the fiscal first quarter, it repurchased approximately 0.83 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 Feb 29, 2024, it had $113.6 million stock remaining under the repurchase authorization.
Fiscal 2024 Guidance
For the full year, it anticipates housing revenues between $6.50 billion and $6.90 billion (versus $6.40-$6.80 billion expected earlier), up from the fiscal 2023 level of $6.37 billion. ASP is estimated in the range of $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 in the band of 10.9-11.3%. In fiscal 2023, it was 11.3%. Assuming no inventory-related charges, KB Home expects the housing gross margin between 21% and 21.4%, down from 21.4% reported a year ago.
SG&A expenses, as a percentage of housing revenues, are likely to be 10.2%. It projects an effective tax rate of approximately 23%. The company expects the average community count to increase 7% and the ending community count to be roughly 260.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, KB Home has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 B. 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. It comes with little surprise KB Home has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
KB Home (KBH) : Free Stock Analysis Report
