Higher Prices Drive KB Homes to Profit Beat in Third Quarter

Andrew Klips |

KB Homes (KBH) , one of the U.S.’s largest homebuilders, on Tuesday reported better-than-expected earnings that soared on the back of better margins and higher prices as tight inventories of existing homes and rising interest rates helped draw in consumers to hustle build new houses.

For the quarter ended August 31, Los Angeles-based KB Home reported total revenue of $549.0 million, up 29 percent from $424.5 million in the year prior quarter.  Profits for the fiscal third quarter were $27.3 million, or 30 cents per share, compared to only $3.26 million, or 4 cents per share in last year’s quarter.

Wall Street was expecting earnings per share of 21 cents on revenue of $567.0 million.

Average selling price for a home jumped 22 percent from $245,100 last year to $299,100.  It was the thirteenth consecutive quarter of year-over-year increases in average selling price.

Housing gross profit margin widened by 150 basis points to 18.2 percent, including a $5.9 million charge associated with water damage repairs at some properties in central and southwest Florida.  Gross profit last year benefited from insurance recoveries.  Excluding those items from 2012 and 2013, housing gross profit margin improved by 500 basis points to 19.3 percent.

Meanwhile, selling, general and administrative costs as a percentage of home building revenue declined by 250 basis points.

Total home deliveries rose 6 percent to 1,825 units, marking the eighth straight quarter of year-over-year growth.

“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,” said Jeffrey Mezger, president and chief executive officer at KB Home, in a statement today.

Mezger added that the “uptick in mortgage interest rates is a temporary effect, and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing.”  Interest rates, while still low by historic standards, have risen about 1 percent since May, which motivated some buyers to build early in the summer before rates potentially moved higher.

Backlog at the end of the recent quarter was 3.039 homes representing $808.5 million in potential revenue, compared to 3,142 homes valued at $744.7 million in the third quarter of 2012.

On Wednesday, the Commerce Department releases new home sales information for the month of August.  Last month the agency reported a stark downturn in July with new home sales shrinking 13.4 percent from June to an annualized rate of 394,000.  Economists are expecting August sales to have expanded, calling to a rise in the annual pace to about 420,000 units.

Shares of KBH are trading ahead by 4.9 percent in Tuesday morning action at $17.86.  Shares are up 13 percent so far in 2013.

 

[Image Courtesy of Flickr Creative Commons]

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Companies

Symbol Name Price Change % Volume
KBH KB Home 16.55 0.47 2.92 1,975,348
MEJHY MEIJI Holdings Co. Ltd. ADR 24.83 0.00 0.00 0

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