KB Home (KBH)

[eastunder]

KB Home Reports Third Quarter 2012 Results

http://www.knobias.com/story.htm?eid=3.1.41d60f17acc1f4bd39a33aec3da816e7378572ea220dd7c28e5a45a259a5e2b0

Friday , September 21, 2012 05:30ET

Revenues Increase 16%; Earnings Per Share of $.04

Net Order Value Increases 16% to $493.3 Million; Backlog Value Up 33% to $744.7 Million

LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH), one of the nation's largest and most recognized homebuilders, today reported results for its third quarter ended August 31, 2012. Highlights and developments include the following:

Three Months Ended August 31, 2012

-- Revenues increased 16% to $424.5 million, compared to $367.3 million for
the third quarter of 2011, reflecting growth in the number of homes
delivered and a higher average selling price.
o The Company delivered 1,720 homes, up 7% from the year-earlier
quarter, with three of the Company's four homebuilding regions posting
year-over-year increases.
o The overall average selling price of $245,100 rose by $17,700, or 8%,
from $227,400 for the year-earlier quarter, marking the ninth
consecutive quarter of year-over-year increases, and was up by
$12,100, or 5% from $233,000 in the second quarter of 2012.
o Compared to the year-earlier quarter, average selling prices increased
14% in the Company's West Coast region, 13% in its Southwest region
and 6% in its Southeast region. The average selling price in the
Company's Central region was essentially even with the prior year.


-- The housing gross profit margin improved to 17.5%, up 60 basis points
compared to 16.9% in both the third quarter of 2011 and the second
quarter of 2012.
o The housing gross profit margin for the current quarter reflected an
insurance recovery of $16.5 million for previously incurred expenses,
including costs associated with drywall material manufactured in
China. The Company expects to receive the cash from this insurance
recovery in the fourth quarter. In the 2011 third quarter, the housing
gross profit margin included $7.4 million of favorable warranty
adjustments.
o Excluding inventory impairment charges of $6.4 million in the current
quarter and inventory impairment and land option contract abandonment
charges of $1.2 million in the year-earlier quarter, the third quarter
housing gross profit margin improved by 180 basis points to 19.0% in
2012 from 17.2% in 2011.
-- While the Company delivered more homes, generating higher related
revenues and associated selling expenses, its selling, general and
administrative expenses of $62.8 million in the current quarter were up
only slightly from $60.2 million in the same quarter a year ago.
Additionally, the year-earlier quarter included the favorable impact of
legal expense recoveries of $8.3 million.
o Reflecting the higher revenues, selling, general and administrative
expenses as a percentage of housing revenues improved by 160 basis
points to 14.9% from 16.5% a year ago, and by 720 basis points from
22.1% in the 2012 second quarter.
o The Company's selling, general and administrative expense ratio
reached its lowest third-quarter level since 2007.
-- The Company's homebuilding operating income increased significantly to
$10.9 million in the current quarter, up from $1.4 million in the
year-earlier quarter.
o This marked the Company's first posting of quarterly operating income
in 2012.
o As a percentage of homebuilding revenues, homebuilding operating
income was 2.6%, up 220 basis points from .4% in the third quarter of
2011.
o Compared to the second quarter of 2012, the Company's homebuilding
operating results as a percentage of homebuilding revenues improved by
780 basis points.



-- Interest expense totaled $23.1 million, up from $12.3 million in the
year-earlier quarter.
o Interest expense in the current quarter reflected an $8.3 million loss
on the early extinguishment of debt associated with the Company's
purchase of certain of its outstanding senior notes pursuant to
previously announced cash tender offers.
-- Net income totaled $3.3 million, up $12.9 million from the net loss of
$9.6 million in the year-earlier quarter. The Company's earnings per
diluted share of $.04 represented a considerable improvement from the
loss per diluted share of $.13 in the year-earlier quarter.
o The current quarter results included an income tax benefit of $10.7
million primarily due to the resolution of a federal income tax audit.
The Company received the related income tax refund in the fourth
quarter.


Nine Months Ended August 31, 2012

-- Homes delivered increased 9% to 4,160, up from 3,817 in the year-earlier
period.
-- The overall average selling price of $234,100 was up 8% from $217,400
for the corresponding period of 2011.
-- Revenues totaled $981.9 million, up 17% from $836.0 million for the
year-earlier period.
-- The Company's net loss of $66.7 million, or $.86 per diluted share,
improved substantially from the net loss of $192.7 million, or $2.50 per
diluted share, for the nine months ended August 31, 2011.


Backlog and Net Orders

-- Potential future housing revenues in backlog at August 31, 2012 rose
substantially to $744.7 million, up 33% from $559.3 million at August
31, 2011, with three of the Company's four homebuilding regions posting
year-over-year increases.
o The potential future housing revenues in backlog reached the highest
third quarter-end level since 2008.
o The number of homes in the Company's backlog increased 18% to 3,142 at
August 31, 2012 from 2,657 at August 31, 2011.


-- The overall value of net orders generated in the third quarter of 2012
grew to $493.3 million, up 16% from $426.7 million in the year-earlier
quarter.
o Three of the Company's four homebuilding regions reported sizable
year-over-year increases in net order value, with its West Coast
region up 25% to $252.6 million, its Central region up 20% to $135.9
million, and its Southeast region up 10% to $70.2 million.
-- Net orders increased to 1,900 in the third quarter of 2012, up 3% from
the strong net orders of 1,838 in the year-earlier quarter, which had
increased 40% from the third quarter of 2010. The year-over-year net
order comparison was also tempered by the Company's lower community
count, which decreased 13% to 203 at the end of the current quarter from
233 at the end of the third quarter of 2011.
o The Company's overall net order growth reflected increases of 13% in
each of the Company's West Coast and Central regions, and an increase
of 1% in its Southeast region. These increases were partly offset by a
decrease of 41% in the Company's Southwest region, which was largely
due to the Company's ongoing strategic repositioning of its operations
in the region.
o The cancellation rate as a percentage of gross orders was 29%,
unchanged from the year-earlier quarter and slightly higher than the
26% rate in the 2012 second quarter. As a percentage of beginning
backlog, the cancellation rate improved to 26% from 32% in both the
third quarter of 2011 and the second quarter of 2012.


Balance Sheet

-- Cash and cash equivalents and restricted cash totaled $466.5 million at
August 31, 2012, including unrestricted cash and cash equivalents of
$420.4 million. At May 31, 2012, cash and cash equivalents and
restricted cash totaled $377.4 million, including unrestricted cash and
cash equivalents of $314.3 million.
o Even though the Company invested more in land and land development
than in the year-earlier quarter, it generated $14.1 million of
positive net cash flow from operating activities, compared to $38.6
million of net cash used in operating activities in the third quarter
of 2011. The Company also generated approximately $92 million in cash,
net of expenses, from the issuance of new senior notes in the 2012
third quarter.
-- Inventories at August 31, 2012 were $1.77 billion, up from $1.73 billion
at November 30, 2011.
o Land and land development spending totaled $337.0 million in the first
nine months of 2012. While the Company invested in land and land
development in each of its homebuilding regions, the majority of its
land-related spending during the period was in California and Texas.
o The Company owned or controlled 44,582 lots as of August 31, 2012, an
increase of 11% from 40,170 lots owned or controlled at November 30,
2011, and an increase of 21% from 36,771 lots owned or controlled at
August 31, 2011.
-- The Company's debt balance of $1.73 billion at August 31, 2012 increased
from $1.58 billion at November 30, 2011.
o During the current quarter, the Company issued $350.0 million in
aggregate principal amount of 7.5% senior notes due 2022. Net proceeds
from the issuance were used to purchase an aggregate principal amount
of $244.9 million of the Company's 5 3/4% senior notes due 2014 and 5
7/8% and 6 1/4% senior notes due 2015 that were validly tendered and
accepted for purchase pursuant to the Company's previously announced
cash tender offers for those series, each of which expired on August
7, 2012. The Company plans to use the remaining net proceeds from the
issuance for general corporate purposes.
o The Company's next scheduled debt maturity is not until 2014, when the
remaining $76.0 million of its 5 3/4% senior notes become due.


Management Comments

"We are pleased to report a profit for the third quarter," said Jeffrey Mezger, president and chief executive officer. "During the quarter, we continued to generate improvement in several key financial and operating metrics. The favorable year-over-year performance in our deliveries; revenues; operating income; net orders; and backlog were particularly encouraging as we operated with fewer communities. These trends illustrate that the strategic repositioning of our operations to restore profitability is starting to yield tangible results, as we also saw significant increases in our overall average selling price and gross profit margin, and substantial improvement in our selling, general and administrative expense ratio. At the same time, it is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise. In particular, we are seeing dramatic improvement in California, where we are the state's largest homebuilder, as the continued strengthening in the coastal markets is now spreading inland to Sacramento, the Central Valley and the Inland Empire."

"One of the impacts of our strategic repositioning has been a declining community count, which has moderated our net order growth," continued Mezger. "Now that we have a clear path to achieve profitability, we are accelerating our investments to expand our business in all four of our operating regions. Although our community count will bottom in the fourth quarter, we expect to reverse this trend in 2013. This improvement, when coupled with one of the highest sales rates per community in the industry, should significantly advance our business. With an improved financial position and enhanced liquidity as a result of the financing transactions completed in the quarter, we believe we are well-positioned to capitalize on opportunities for growth as the housing market recovery progresses."