KB Home posts Q4 net income of US$13.9M compared with US$17.4M a year ago; revenues rose 6% to US$479.9M year-over-year, on higher selling prices, homes delivered
December 21, 2011
– KB Home (NYSE: KBH), one of the nation's premier homebuilders, today reported results for its fourth quarter and fiscal year ended November 30, 2011. Highlights and developments include the following:
"In 2012, we will continue to leverage our geographically diverse market positions, our innovative home designs, our market-differentiating Built to Order™ approach, and our leaner, more efficient organization to advance our main goal—achieving sustained profitability," continued Mezger. "Our focus will be on driving growth in our sales and margins to optimize returns on the investments we have made in strategic land positions and in our new home communities. We anticipate that our companywide average selling price will continue to grow in 2012 as we heighten our concentration in our most desirable markets, particularly in our West Coast region which typically generates higher profits. We will remain attentive to the business environment, which is likely to be volatile, and we will make appropriate adjustments within our operations as conditions warrant."
For the quarter ended November 30, 2011, revenues totaled $479.9 million, up 6% from the year-earlier quarter, reflecting increases of 4% in the number of homes delivered and 3% in the average selling price. The Company delivered 1,995 homes at an average selling price of $238,400 in the fourth quarter of 2011, compared to 1,918 homes delivered at an average selling price of $232,500 in the year-earlier quarter. Land sale revenues totaled $.1 million in the fourth quarter of 2011 and $1.9 million in the fourth quarter of 2010.
The Company's homebuilding business posted operating income of $.8 million for the quarter ended November 30, 2011, down from $29.1 million for the year-earlier quarter, reflecting lower gross profits and increased selling, general and administrative expenses, partly offset by a gain on loan guaranty of $6.6 million.
The year-over-year decrease in fourth quarter gross profits resulted from a lower housing gross margin, partially offset by an increase in the number of homes delivered. The Company's fourth quarter housing gross margin was 14.7% in 2011 and 19.1% in 2010. The current quarter's housing gross margin included $2.3 million of noncash inventory impairment and land option contract abandonment charges, compared to $2.9 million of such charges in the year-earlier quarter. Excluding these inventory-related charges, the current quarter's housing gross margin would have been 15.1%, down from 19.7% in the corresponding quarter of 2010. This year-over-year decrease reflected fewer homes delivered from higher-margin communities, largely as a result of higher-margin community close-outs in the year-earlier period, partly offset by improved operating leverage from an overall increase in the volume of homes delivered. The fourth quarter 2011 housing gross margin, excluding inventory-related charges, remained essentially flat with the 15.2% posted in the 2011 third quarter, which also excluded favorable warranty adjustments, and improved from 14.9% in the second quarter and 13.4% in the first quarter.
Selling, general and administrative expenses increased by $19.9 million, or 36%, to $75.6 million in the fourth quarter of 2011 from $55.7 million in the year-earlier quarter as the impact of the Company's ongoing progress in streamlining its organizational structure and reducing overhead was more than offset by the effect of the higher number of homes delivered, increased marketing expenses to support new community openings and higher legal expenses. As a percentage of housing revenues, the Company's selling, general and administrative expenses were 15.9% in the fourth quarter of 2011, an improvement from 25.4% in the first quarter, 23.2% in the second quarter and 16.5% in the third quarter of 2011. This improvement reflected both the Company's higher housing revenues and the impact of its cost reduction activities. In the fourth quarter of 2010, this ratio was 12.5%. The Company expects the favorable effects of its cost-cutting measures to become more visible in 2012.
During the 2011 fourth quarter, the bankruptcy and lender-related legal matters concerning South Edge, LLC and the Company's obligations with respect to those matters were essentially resolved. South Edge, LLC was a residential development joint venture located near Las Vegas, Nevada in which a Company subsidiary participated along with other unrelated homebuilders and a third party property development firm. The gain on loan guaranty during the quarter reflected the consummation of a consensual plan of reorganization of South Edge, LLC that was confirmed by a bankruptcy court in November and included, among other things, the satisfaction of a limited several repayment guaranty the Company provided to the administrative agent for the lenders to South Edge, LLC. In connection with the reorganization plan and the settlement of other South Edge-related legal matters, the Company made payments of $251.9 million in the fourth quarter of 2011.
Interest expense, net of amounts capitalized, decreased to $12.3 million in the fourth quarter of 2011 from $16.2 million in the year-earlier quarter, mainly due to a reduction in the amount of debt outstanding and an increase in the amount of interest capitalized as a result of a higher balance of inventory qualifying for interest capitalization.
The Company's financial services operations generated pretax income of $22.8 million for the current quarter and $3.6 million for the year-earlier quarter. The results for the 2011 fourth quarter included a gain of $19.8 million related to the wind down of the Company's unconsolidated mortgage banking joint venture, which stopped offering mortgage banking services in late June 2011. The Company received the cash associated with the gain in early December, and therefore it was not reflected in the Company's year-end cash balance. In 2010, the financial services results for the fourth quarter included the Company's equity in income of the unconsolidated mortgage banking joint venture of $1.1 million.
The Company posted pretax income of $11.4 million in the fourth quarter of 2011, compared to $15.4 million in the year-earlier quarter. In the fourth quarter, the Company generated a net profit for the first time in 2011, reporting net income of $13.9 million, or $.18 per diluted share, including an income tax benefit of $2.5 million. In the fourth quarter of 2010, the Company generated net income of $17.4 million, or $.23 per diluted share, including an income tax benefit of $2.0 million.
The Company's net orders in the fourth quarter of 2011 increased 38% on a year-over-year basis to 1,494 from 1,085 in the year-earlier period. Net orders were higher in each of the Company's four geographic regions, with increases ranging from 10% in the Southwest region to 48% in the West Coast region. These favorable comparisons reflected activity from new home communities opened during the year, as well as depressed net orders in the year-earlier quarter resulting in part from reduced demand following the expiration of the federal homebuyer tax credit in April 2010. The cancellation rate as a percentage of gross orders was 34% in the fourth quarter of 2011 and 37% in the year-earlier quarter. The Company's backlog at the end of 2011 totaled 2,156 homes, a 61% increase from the 1,336 homes in backlog at the end of 2010. Projected future housing revenues from homes in backlog at November 30, 2011 totaled approximately $459.0 million, representing a 74% increase from projected future housing revenues of approximately $263.8 million at November 30, 2010, with each of the Company's geographic regions generating a year-over-year increase in backlog levels.
For the year ended November 30, 2011, Company-wide revenues totaled $1.32 billion, down 17% from $1.59 billion for the year-earlier period. The decrease was mainly due to lower housing revenues. The number of homes delivered in 2011 decreased 21% year over year to 5,812, while the average selling price increased 5% to $224,600. The Company posted a net loss of $178.8 million, or $2.32 per diluted share, for the year ended November 30, 2011, including noncash charges of $79.5 million for inventory and joint venture impairments and land option contract abandonments and a $30.8 million loss on loan guaranty, partially offset by a $19.8 million gain related to the wind down of the Company's unconsolidated mortgage banking joint venture, and an income tax benefit of $2.4 million. For the year ended November 30, 2010, the Company posted a net loss of $69.4 million, or $.90 per diluted share, including noncash charges of $19.9 million for inventory impairments and land option contract abandonments, and an income tax benefit of $7.0 million. The Company's net orders for the year ended November 30, 2011 increased to 6,632 from 6,556 in the prior year, representing the first increase in full year net orders in two years.
The Conference Call on the Fourth Quarter 2011 earnings will be broadcast live TODAY at 8:30 a.m. Pacific Standard Time, 11:30 a.m. Eastern Standard Time. To listen, please go to the Investor Relations section of the Company's website at www.kbhome.com.
About KB Home
KB Home is one of the largest and most recognized homebuilding companies in the United States. Since its founding in 1957, the Company has built more than half a million quality homes. KB Home's signature Built to Order™ approach lets each buyer customize their new home from lot location to floor plan and design features. In addition to meeting strict ENERGY STAR® guidelines, all KB homes are highly energy efficient to help lower monthly utility costs for homeowners, which the Company demonstrates with its proprietary KB Home Energy Performance Guide™ (EPG). A leader in utilizing state-of-the-art sustainable building practices, KB Home was named the #1 Green Homebuilder in a 2010 study by Calvert Investments and the #1 Homebuilder on FORTUNE magazine's 2011 World's Most Admired Companies list. Los Angeles-based KB Home was the first homebuilder listed on the New York Stock Exchange, and trades under the ticker symbol "KBH." For more information about KB Home's new home communities, call 888-KB-HOMES or visit www.kbhome.com.
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