KB Home Reports 2024 First Quarter Results

Revenues Grew 6% to $1.47 Billion; Diluted Earnings Per Share Increased 21% to $1.76

Net Orders Up 55%; Net Order Value Increased 58% to $1.58 Billion

Repurchased $50 Million of Common Stock

KB Home KBH today reported results for its first quarter ended February 29, 2024.

"Fiscal 2024 is off to a strong start, as we generated solid results in our first quarter that were either at or above the high end of our guidance ranges. Market conditions have improved since the end of our 2023 fiscal year, contributing to the significant year‐over‐year increase in our net orders for the quarter," said Jeffrey Mezger, Chairman and Chief Executive Officer. "This positive momentum in demand has continued in our 2024 second quarter to date, and we believe we are well‐positioned to capitalize on it given our commitment to offering all homebuyers the ability to personalize their home, our well-designed products and attractive price points, as well as our expanding community count."

"With a healthy balance sheet and strong cash flow, we continue to prioritize investing in land acquisition and development, as well as returning capital to our stockholders. In the 2024 first quarter, we increased our investments in land and land development and continued to repurchase our common stock. While positioning the Company for growth, we also intend to make additional share repurchases in 2024, as we remain focused on creating long‐term stockholder value," concluded Mezger.

Three Months Ended February 29, 2024 (comparisons on a year-over-year basis)

  • Revenues up 6% to $1.47 billion.
  • Homes delivered increased 9% to 3,037.
  • Average selling price was $480,100, compared to $494,500.
  • Homebuilding operating income totaled $157.7 million, up slightly from $156.5 million. The homebuilding operating income margin was 10.8%, compared to 11.4%. Excluding total inventory-related charges of $1.3 million for the current quarter and $5.3 million for the year-earlier quarter, the homebuilding operating income margin was 10.9%, compared to 11.7%.
    • The housing gross profit margin of 21.5% was even with the year-earlier quarter. Excluding the above-mentioned inventory-related charges, the housing gross profit margin was 21.6%, compared to 21.8%.
    • Selling, general and administrative expenses as a percentage of housing revenues were 10.8%, compared to 10.1%, mainly reflecting higher costs including marketing, advertising and other expenses associated with the planned increase in our community count during the year as we position our operations for growth.
  • Financial services pretax income rose to $11.6 million from $6.0 million, primarily due to increased equity in income of the Company's mortgage banking joint venture. This was largely driven by a higher volume of both interest rate locks and loan originations, as more homes were delivered in the current period and 85% of the buyers financing their home purchases used the joint venture, up from 79%.
  • Net income increased 10% to $138.7 million. Diluted earnings per share grew 21% to $1.76, reflecting the favorable impact of the Company's common stock repurchases over the past several quarters.
    • The effective tax rate was 20.6%, compared to 22.6%, largely due to an increase in tax benefits related to stock-based compensation in the current period.

Backlog and Net Orders (comparisons on a year-over-year basis, except as noted)

  • Net orders grew 55% to 3,323 due to improved demand and a lower cancellation rate as compared to the year-earlier quarter. Net order value rose 58% to $1.58 billion, reflecting the growth in net orders and a higher average selling price of those orders.
    • Monthly net orders per community increased to 4.6 from 2.8.
    • Gross orders were up 15% to 3,873, and the cancellation rate as a percentage of gross orders improved to 14%, compared to 36%.
  • The number of homes in the Company's ending backlog totaled 5,796, compared to 7,016. Ending backlog value was $2.79 billion, compared to $3.31 billion. Ending backlog homes and value each increased 5% from the previous quarter.
  • The Company's average community count was down 4% to 240, and ending community count decreased 7% to 238. On a sequential basis, the average community count expanded 2%.

Balance Sheet as of February 29, 2024 (comparisons to November 30, 2023, except as noted)

  • The Company had total liquidity of $1.75 billion, including $668.1 million of cash and cash equivalents and $1.08 billion of available capacity under its unsecured revolving credit facility, with no cash borrowings outstanding.
  • Inventories totaled $5.24 billion, up 2%.
    • The Company's total investments in land and land development of $587.1 million increased 60% from the year-earlier quarter.
    • The Company's lots owned or under contract totaled 55,509, of which approximately 72% were owned and 28% were under contract.
  • Notes payable of $1.69 billion were essentially unchanged. The Company's debt to capital ratio improved 30 basis points to 30.4%, compared to 30.7%. On a year-over-year basis, the debt to capital ratio improved 220 basis points from 32.6%.
  • Stockholders' equity increased to $3.88 billion, compared to $3.81 billion, mainly reflecting net income, partly offset by common stock repurchases and cash dividends.
    • In the 2024 first quarter, the Company repurchased 826,663 shares of its outstanding common stock at a total cost of $50.0 million. As of February 29, 2024, the Company had $113.6 million remaining under its current common stock repurchase authorization.
    • Based on the Company's 75.9 million outstanding shares as of February 29, 2024, book value per share of $51.14 increased 14% year over year.

Guidance

The Company is providing the following guidance for its 2024 full year:

  • Housing revenues in the range of $6.50 billion to $6.90 billion.
  • Average selling price in the range of $480,000 to $490,000.
  • Homebuilding operating income as a percentage of revenues in the range of 10.9% to 11.3%, assuming no inventory-related charges.
    • Housing gross profit margin in the range of 21.0% to 21.4%, assuming no inventory-related charges.
    • Selling, general and administrative expenses as a percentage of housing revenues of approximately 10.2%.
  • Effective tax rate of approximately 23.0%.
  • Ending community count of about 260, up 7% year over year.

The Company plans to also provide guidance for its 2024 second quarter on its conference call today.

Conference Call

The conference call to discuss the Company's 2024 first quarter earnings will be broadcast live TODAY at 2:00 p.m. Pacific Time, 5:00 p.m. Eastern Time. To listen, please go to the Investor Relations section of the Company's website at kbhome.com.

About KB Home

KB Home is one of the largest and most trusted homebuilders in the United States. We operate in 47 markets, have built over 680,000 quality homes in our more than 65-year history, and are honored to be the #1 customer-ranked national homebuilder based on third-party buyer surveys. What sets KB Home apart is building strong, personal relationships with every customer and creating an exceptional homebuying experience that offers our homebuyers the ability to personalize their home based on what they value at a price they can afford. As the industry leader in sustainability, KB Home has achieved one of the highest residential energy-efficiency ratings and delivered more ENERGY STAR® certified homes than any other builder, helping to lower the total cost of homeownership. For more information, visit kbhome.com.

Forward-Looking and Cautionary Statements

Certain matters discussed in this press release, including any statements that are predictive in nature or concern future market and economic conditions, business and prospects, our future financial and operational performance, or our future actions and their expected results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and projections about future events and are not guarantees of future performance. We do not have a specific policy or intent of updating or revising forward-looking statements. If we update or revise any such statement(s), no assumption should be made that we will further update or revise that statement(s) or update or revise any other such statement(s). Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to the following: general economic, employment and business conditions; population growth, household formations and demographic trends; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; the execution of any securities repurchases pursuant to our board of directors' authorization; material and trade costs and availability, including building materials and appliances, and delays related to state and municipal construction, permitting, inspection and utility processes, which have been disrupted by key equipment shortages; consumer and producer price inflation; changes in interest rates, including those set by the Federal Reserve, which the Federal Reserve has increased sharply over the past two years and may further increase to moderate inflation, and those available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; our compliance with the terms of our revolving credit facility and our senior unsecured term loan; the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees to or for us under our revolving credit facility or unsecured letter of credit facility; volatility in the market price of our common stock; home selling prices, including our homes' selling prices, being unaffordable relative to consumer incomes; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors, such as a lack of adequate water supply to permit new home communities in certain areas; any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government's operations (also known as a government shutdown), and financial markets' and businesses' reactions to any such failure; government actions, policies, programs and regulations directed at or affecting the housing market (including the tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect thereto, such as the Internal Revenue Service's recent guidance regarding heightened qualification requirements for federal tax credits for building energy-efficient homes; changes in U.S. trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with and retaliatory measures taken by other countries; disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict and other attacks in the Middle East region and military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S. and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, exacerbate building materials and appliance shortages and/or reduce our revenues and earnings; the adoption of new or amended financial accounting standards and the guidance and/or interpretations with respect thereto; the availability and cost of land in desirable areas and our ability to timely and efficiently develop acquired land parcels and open new home communities; impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements, including the costs to implement recent federal and state climate-related disclosure rules, or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; our ability to use/realize the net deferred tax assets we have generated; our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning, gaining share and scale in our served markets and in entering into new markets; our operational and investment concentration in markets in California; consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives, including those discussed in this release or in any of our other public filings, presentations or disclosures; income tax expense volatility associated with stock-based compensation; the ability of our homebuyers to obtain homeowners and flood insurance policies, and/or typical or lender-required policies for other hazards or events, for their homes, which may depend on the ability and willingness of insurers or government-funded or -sponsored programs to offer coverage at an affordable price or at all; the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, which may depend on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers; the performance of mortgage lenders to our homebuyers; the performance of KBHS Home Loans, LLC ("KBHS"); the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans; information technology failures and data security breaches; an epidemic, pandemic or significant seasonal or other disease outbreak, and the control response measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period; widespread protests and/or civil unrest, whether due to political events, social movements or other reasons; and other events outside of our control. Please see our periodic reports and other filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our business.

KB HOME

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended February 29, 2024 and February 28, 2023

(In Thousands, Except Per Share Amounts – Unaudited)

 

 

Three Months Ended

 

February 29,

2024

 

February 28,

2023

Total revenues

$

1,467,766

 

 

$

1,384,314

 

Homebuilding:

 

 

 

Revenues

$

1,461,698

 

 

$

1,378,537

 

Costs and expenses

 

(1,304,022

)

 

 

(1,222,048

)

Operating income

 

157,676

 

 

 

156,489

 

Interest income

 

5,857

 

 

 

467

 

Equity in loss of unconsolidated joint ventures

 

(445

)

 

 

(757

)

Homebuilding pretax income

 

163,088

 

 

 

156,199

 

Financial services:

 

 

 

Revenues

 

6,068

 

 

 

5,777

 

Expenses

 

(1,546

)

 

 

(1,358

)

Equity in income of unconsolidated joint ventures

 

7,055

 

 

 

1,582

 

Financial services pretax income

 

11,577

 

 

 

6,001

 

Total pretax income

 

174,665

 

 

 

162,200

 

Income tax expense

 

(36,000

)

 

 

(36,700

)

Net income

$

138,665

 

 

$

125,500

 

Earnings per share:

 

 

 

Basic

$

1.81

 

 

$

1.49

 

Diluted

$

1.76

 

 

$

1.45

 

Weighted average shares outstanding:

 

 

 

Basic

 

75,894

 

 

 

83,468

 

Diluted

 

78,264

 

 

 

85,995

 

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)

 

 

February 29,

2024

 

November 30,

2023

Assets

 

 

 

Homebuilding:

 

 

 

Cash and cash equivalents

$

668,084

 

$

727,076

Receivables

 

354,728

 

 

 

366,862

 

Inventories

 

5,243,581

 

 

 

5,133,646

 

Investments in unconsolidated joint ventures

 

59,674

 

 

 

59,128

 

Property and equipment, net

 

88,433

 

 

 

88,309

 

Deferred tax assets, net

 

117,175

 

 

 

119,475

 

Other assets

 

93,411

 

 

 

96,987

 

 

 

6,625,086

 

 

 

6,591,483

 

Financial services

 

58,406

 

 

 

56,879

 

Total assets

$

6,683,492

 

 

$

6,648,362

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

Homebuilding:

 

 

 

Accounts payable

$

378,906

 

 

$

388,452

 

Accrued expenses and other liabilities

 

728,328

 

 

 

758,227

 

Notes payable

 

1,692,729

 

 

 

1,689,898

 

 

 

2,799,963

 

 

 

2,836,577

 

Financial services

 

859

 

 

 

1,645

 

Stockholders' equity

 

3,882,670

 

 

 

3,810,140

 

Total liabilities and stockholders' equity

$

6,683,492

 

 

$

6,648,362

 

KB HOME

SUPPLEMENTAL INFORMATION

For the Three Months Ended February 29, 2024 and February 28, 2023

(In Thousands, Except Average Selling Price – Unaudited)

 

 

 

 

 

Three Months Ended

 

February 29,

2024

 

February 28,

2023

Homebuilding revenues:

 

 

 

Housing

$

1,458,126

 

 

$

1,378,537

 

Land

 

3,572

 

 

 

 

Total

$

1,461,698

 

 

$

1,378,537

 

 

 

 

 

 

 

 

 

Homebuilding costs and expenses:

 

 

 

Construction and land costs

 

 

 

Housing

$

1,144,427

 

 

$

1,082,821

 

Land

 

2,101

 

 

 

 

Subtotal

 

1,146,528

 

 

 

1,082,821

 

Selling, general and administrative expenses

 

157,494

 

 

 

139,227

 

Total

$

1,304,022

 

 

$

1,222,048

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

Interest incurred

$

26,505

 

 

$

27,804

 

Interest capitalized

 

(26,505

)

 

 

(27,804

)

Total

$

 

 

$

 

 

 

 

 

 

 

 

 

Other information:

 

 

 

Amortization of previously capitalized interest

$

26,503

 

 

$

26,136

 

Depreciation and amortization

 

10,195

 

 

 

9,547

 

 

 

 

 

 

 

 

 

Average selling price:

 

 

 

West Coast

$

673,800

 

 

$

687,000

 

Southwest

 

450,700

 

 

 

447,000

 

Central

 

364,700

 

 

 

417,100

 

Southeast

 

417,700

 

 

 

393,600

 

Total

$

480,100

 

 

$

494,500

 

KB HOME

SUPPLEMENTAL INFORMATION

For the Three Months Ended February 29, 2024 and February 28, 2023

(Dollars in Thousands – Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

February 29,

2024

 

February 28,

2023

Homes delivered:

 

 

 

 

 

 

 

West Coast

 

 

 

 

 

828

 

 

 

786

 

Southwest

 

 

 

 

 

717

 

 

 

536

 

Central

 

 

 

 

 

870

 

 

 

935

 

Southeast

 

 

 

 

 

622

 

 

 

531

 

Total

 

 

 

 

 

3,037

 

 

 

2,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net orders:

 

 

 

 

 

 

 

West Coast

 

 

 

 

 

950

 

 

 

857

 

Southwest

 

 

 

 

 

698

 

 

 

470

 

Central

 

 

 

 

 

1,017

 

 

 

411

 

Southeast

 

 

 

 

 

658

 

 

 

404

 

Total

 

 

 

 

 

3,323

 

 

 

2,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net order value:

 

 

 

 

 

 

 

West Coast

 

 

 

 

$

633,400

 

$

535,539

Southwest

 

 

 

 

 

314,863

 

 

 

177,392

 

Central

 

 

 

 

 

363,923

 

 

 

139,468

 

Southeast

 

 

 

 

 

270,005

 

 

 

149,469

 

Total

 

 

 

 

$

1,582,191

 

 

$

1,001,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 29, 2024

 

February 28, 2023

 

Homes

 

Value

 

Homes

 

Value

Backlog data:

 

 

 

 

 

 

 

West Coast

1,667

 

$

1,100,889

 

 

1,358

 

 

$

918,535

 

Southwest

1,360

 

 

 

608,455

 

 

 

1,626

 

 

 

686,101

 

Central

1,414

 

 

 

505,194

 

 

 

2,465

 

 

 

1,069,380

 

Southeast

1,355

 

 

 

577,206

 

 

 

1,567

 

 

 

640,874

 

Total

5,796

 

 

$

2,791,744

 

 

 

7,016

 

 

$

3,314,890

 

KB HOME

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In Thousands, Except Percentages – Unaudited)

This press release contains, and Company management's discussion of the results presented in this press release may include, information about the Company's adjusted housing gross profit margin, which is not calculated in accordance with generally accepted accounting principles ("GAAP"). The Company believes this non-GAAP financial measure is relevant and useful to investors in understanding its operations, and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. However, because it is not calculated in accordance with GAAP, this non-GAAP financial measure may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement the most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting the Company's operations.

Adjusted Housing Gross Profit Margin

The following table reconciles the Company's housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of the Company's adjusted housing gross profit margin:

 

Three Months Ended

 

February 29,

2024

 

February 28,

2023

Housing revenues

$

1,458,126

 

 

$

1,378,537

 

Housing construction and land costs

 

(1,144,427

)

 

 

(1,082,821

)

Housing gross profits

 

313,699

 

 

 

295,716

 

Add: Inventory-related charges (a)

 

1,298

 

 

 

5,289

 

Adjusted housing gross profits

$

314,997

 

 

$

301,005

 

Housing gross profit margin

 

21.5

%

 

 

21.5

%

Adjusted housing gross profit margin

 

21.6

%

 

 

21.8

%

(a)

Represents inventory impairment and land option contract abandonment charges associated with housing operations.

Adjusted housing gross profit margin is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs excluding housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. The Company believes adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating the Company's performance as it measures the gross profits the Company generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with the Company's competitors that adjust housing gross profit margins in a similar manner. The Company also believes investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory impairment and land option contract abandonment charges. This financial measure assists management in making strategic decisions regarding community location and product mix, product pricing and construction pace.

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