KB Homes Beat on Q1 Earnings, Withdraws FY 2020 View

KB Homes Beat on Q1 Earnings, Withdraws FY 2020 View
March 30, 2020

 

The house construction company KB Home (NYSE: KBH) reported fiscal 2020 first-quarter earnings that almost doubled from last year. The company also blew away the earnings estimate of analysts. As the market stares at unparalleled levels of uncertainty, the stock closed almost flat at $17.89 Friday. The stock is, currently, down slightly more than 40% since the start of the year.

The Los Angeles, California-based KB Home reported 1Q 2020 revenues of $1.08 billion, a 33.3% increase from $0.81 billion in the similar period last year. For the quarter ended February 29th, 2020, the company posted earnings of $59.75 million, or $0.63 a share, compared with $30.01 million, or $0.31 per share, in the year-ago quarter. Analysts polled by Thomson Reuters had anticipated the company to post earnings of $0.44 per share on revenues of $957.70 million.

The company capitalized on the robust housing market in the first quarter. The strong inflow of fresh orders and a rise in margins enabled the company to post an impressive growth rate of 103%, from 36% in the earlier quarter. The number of delivered homes increased by 28%, while the average selling price rose by 5%. Similarly, operating income grew by 92%, while operating margin increased by 170 basis points to 5.6%. The gross homebuilding margin increased 30 basis points to 17.4%.

Jeffrey Mezger, Chairman, President and CEO, revealed that the company is taking necessary measures to face the uncertainty caused by the coronavirus. “Our principal focus today is the concern for the health and welfare of our employees, customers, and business partners, and their families, in light of the wide-ranging efforts to contain COVID-19 and the impact it will have on the global economy. While our performance in the first quarter was strong, with underlying market conditions that were robust, these results preceded the COVID-19 pandemic declaration, and we are now taking actions to adjust our business in this period of uncertainty.”  

Selling, general, and administrative expenses as a percentage of sales declined 160 basis points to 11.8%. Net orders grew 31% to 3,495 units, reflecting the highest Q1 level since 2007. The net order value rose 35% to $1.38 billion. As a percentage of gross orders, the cancellation rate bettered to 14% from 20%.

KB Home has a backlog of 5,832 houses, an increase of 26% on a y-o-y basis. The value of ending backlog increased by 28% to $2.12 billion. The figures reflected the highest level in 13 years. Low mortgage rates and a robust economy led a 7% surge in new orders. On a cumulated quarter-to-date basis, orders have declined by 5% as the company has shut down sales centers, mirroring the impact of COVID-19 impact.

Regarding liquidity, Mezger said, “KB Home is well-positioned given our strong balance sheet and over $1.2 billion in liquidity.”

The aforementioned liquidity of $1.20 billion includes $787.60 million of unsecured revolving credit facility. Considering the uncertainty created by coronavirus disease, the company has withdrawn its FY 2020 outlook.

The strong quarterly results and negative impact of COVID-10 on the US economy are expected to keep the stock range-bound with a slight bullish bias.

The historical price chart indicates that the stock remains range-bound between 12.50 and 25. The stochastic oscillator is in the oversold region. Therefore, we are anticipating the stock to rally in the days ahead.

kbh - technical analysis - 30th March 2020

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Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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