The slowdown in housing starts didn’t hit KB Home (KBH), which beat analyst expectations for its first quarter ending Feb. 28, posting total revenues of $580.1 million, up 29% from $450.7 million in the year-earlier quarter, driven by growth in the company's housing and land sale revenues.
The company's total revenues have increased on a year-over-year basis for 14 consecutive quarters.
Housing revenues grew 19% to $524.8 million in the current quarter from $440.1 million for the corresponding quarter of 2014. The company delivered 1,593 homes in the first quarter, representing an increase of 10% from 1,442 homes delivered in the year-earlier quarter.
“We reiterate our Neutral rating on KBH. F1Q15's results were generally better than we expected,” said Jay McCanless, analyst at Sterne Agee.
The overall average selling price of homes delivered grew 8% to $329,500, up from $305,200 a year ago, reflecting a shift in the geographic mix of deliveries and generally favorable conditions in the company's served markets.
"We are pleased with the robust growth in our first quarter net orders, net order value and backlog levels, which was fueled primarily by our expanded community count and healthy buyer demand," said Jeffrey Mezger, president and CEO. "Having successfully opened 32 new home communities across our geographic footprint, we ended the quarter with 25% more active communities than we had a year ago, positioning us well as we enter the spring selling season and setting the foundation for a strong finish to 2015. With our expanding community count, we are poised to generate further momentum in our business and prepared to capture pent-up demand for housing as it is unlocked by improvement in fundamental demographic, economic and housing market dynamics."
Average selling prices in the company's West Coast, Central and Southeast homebuilding regions increased 5%, 13% and 3%, respectively, compared to the same quarter of 2014, while the average selling price in its Southwest homebuilding region decreased 4%.
Land sale revenues increased to $53.0 million from $8.1 million a year ago, primarily due to the company's current quarter sale of a large parcel in northern California as part of its strategic emphasis on enhancing asset efficiency by executing on targeted opportunities to monetize certain land positions.
Homebuilding operating income totaled $14.4 million, compared to $17.7 million in the year-earlier quarter. The current quarter included a $6.0 million gain on the sale of land, compared to a $1.0 million gain in the prior-year quarter.
The company's housing gross profit margin decreased 260 basis points to 15.1% from 17.7% in the year-earlier quarter. Excluding the amortization of previously capitalized interest and land option contract abandonment charges in each period, the company's first quarter adjusted housing gross profit margin was 19.5% in 2015 and 21.8% in 2014.
"We extended our positive revenue growth trajectory during the quarter, driven by increases in both the number of homes delivered and the average selling price compared to a year ago," continued Mezger. "As we anticipated, our housing gross profit margin was tempered in the quarter; however, with our rising community count providing a strong start entering the spring selling season and the leverage benefits we are anticipating from projected higher revenues, we expect to produce sequential margin improvement in each of the remaining quarters of 2015, and to significantly narrow the year-over-year gap in our gross margin percentage by the end of the year. Moreover, as the year unfolds, we also anticipate accelerated growth in our revenues as well as greater operating leverage to bolster our bottom-line performance. We believe that further progress on the execution of our strategies to enhance our top-line growth, profitability, asset efficiency and return on invested capital will be a catalyst that, along with the benefits of our larger community count, will enable us to deliver strong financial and operational results in the second half of this year."