[KB Home] – KB Home, a Los Angeles-based homebuilder with construction activity in the Santa Clarita Valley, reported higher profits and 8 percent higher revenues for the second quarter Friday.

Highlights and developments include the following:

Three Months Ended May 31, 2014

• Total revenues increased 8% to $565.0 million from $524.4 million in the year-earlier quarter due to growth in the Company’s housing revenues from higher average selling prices.
  • The Company delivered 1,751 homes in the current quarter, compared to 1,797 homes in the second quarter of 2013.
  • The overall average selling price of $319,700 rose $29,300, or 10%, from the second quarter of 2013, marking the seventh consecutive quarter of double-digit year-over-year percentage growth in the Company’s average selling price.
    • The year-over-year increase in the second quarter average selling price reflected the Company’s continued focus on positioning its new home communities in land-constrained locations that typically feature higher household incomes and strong demand, the Company’s actions to optimize home sales, and generally favorable market conditions.
    • Average selling prices were higher across all of the Company’s homebuilding regions compared to the 2013 second quarter, with increases ranging from 9% in the Southeast region to 23% in the Southwest region.
• Homebuilding operating income increased to $34.3 million, up $25.6 million from $8.7 million in the year-earlier quarter. As a percentage of homebuilding revenues, operating income rose 440 basis points to 6.1%, compared to 1.7% for the 2013 second quarter, and increased 210 basis points compared to 4.0% for the 2014 first quarter.
  • The housing gross profit margin increased 380 basis points to 18.9% from 15.1% for the year-earlier quarter, marking the Company’s highest second quarter housing gross profit margin since 2006. The current quarter housing gross profit margin also improved 120 basis points from the first quarter of 2014.
  • The current quarter housing gross profit margin included $.4 million of land option contract abandonment charges. The housing gross profit margin for the 2013 second quarter included $15.9 million of warranty-related charges and $.3 million of land option contract abandonment charges. Excluding these charges, the Company’s second quarter adjusted housing gross profit margin improved 70 basis points to 18.9% in 2014 from 18.2% in 2013.
  • Selling, general and administrative expenses as a percentage of housing revenues improved 60 basis points to 12.8% from 13.4% in the year-earlier quarter, primarily due to higher housing revenues in the current quarter and the Company’s cost-containment initiatives. On a sequential basis, the current quarter ratio improved 110 basis points from 13.9% in the first quarter of 2014.
    • The current quarter selling, general and administrative expense ratio was the Company’s lowest second quarter ratio since 2006.
• Interest expense decreased to $8.6 million from $14.5 million in the year-earlier quarter, reflecting an increase in the amount of interest capitalized.
• The Company’s financial services operations posted pretax income of $1.8 million, compared to pretax income of $2.0 million in the year-earlier quarter.
• Net income increased to $26.6 million, or $.27 per diluted share, representing a substantial improvement from the net loss of $3.0 million, or $.04 per diluted share, in the second quarter of 2013, mainly due to the Company’s higher revenues, expanded housing gross profit margin and improved selling, general and administrative expense ratio.

Six Months Ended May 31, 2014

• Revenues increased to $1.02 billion, up 9% from $929.6 million in the year-earlier period.
• Homes delivered decreased 3% to 3,193, compared to 3,282 in the six months ended May 31, 2013.
• The overall average selling price of $313,200 increased 11% year over year from $281,700 for the first six months of 2013.
• Homebuilding operating income totaled $52.0 million, up $42.9 million from $9.1 million in the corresponding period of 2013.
• The Company’s net income of $37.2 million, or $.40 per diluted share, increased significantly from the net loss of $15.4 million, or $.19 per diluted share, in the six months ended May 31, 2013.

Backlog and Net Orders

• Potential future housing revenues in backlog at May 31, 2014 grew 24% to $1.03 billion from $826.6 million at May 31, 2013, reflecting an increase in the number of homes in backlog and a higher average selling price.
  • The Company’s quarter-end backlog value exceeded $1.00 billion for the first time since August 31, 2008.
  • The Company’s backlog was comprised of 3,398 homes at May 31, 2014, up 9% from 3,128 homes at May 31, 2013.
• Total net order value increased 19% to $763.2 million for the 2014 second quarter, up from $639.6 million for the year-earlier quarter.
  • Each of the Company’s four homebuilding regions reported year-over-year growth in net order value, ranging from 13% in the Southeast region to 26% in the Central region.
• Reflecting the Company’s investments in land and land development, net orders rose to 2,269, up 5% from 2,162 for the year-earlier quarter, and the average community count increased 7% to 191 from 178 for the year-earlier quarter.
  • The second quarter cancellation rate as a percentage of gross orders was 28% in 2014, compared to 27% in 2013. As a percentage of beginning backlog, the second quarter cancellation rate was 30% in 2014 and 29% in 2013.

Balance Sheet

• Cash, cash equivalents and restricted cash totaled $528.7 million at May 31, 2014, compared to $345.4 million at February 28, 2014 and $572.0 million at November 30, 2013.
  • The Company’s cash, cash equivalents and restricted cash increased from February 28, 2014 mainly due to the capital markets transactions completed in the current quarter, which generated total net proceeds of $531.6 million, partly offset by strategic investments in inventories to support future growth.
    • The Company’s total liquidity at May 31, 2014 was $684.5 million, including its unrestricted cash balance and $200 million unsecured revolving credit facility, which had no borrowings outstanding.
• Inventories increased to $3.01 billion at May 31, 2014 from $2.30 billion at November 30, 2013, reflecting the Company’s $859.6 million of investments in land acquisition and development during the six months ended May 31, 2014, as well as a distribution of land from an unconsolidated joint venture in the first quarter of 2014.
• The Company’s debt balance of $2.57 billion at May 31, 2014 increased from $2.15 billion at November 30, 2013, largely due to its current-quarter public issuance of $400 million in aggregate principal amount of 4.75% senior notes due 2019, which generated net cash proceeds of $394.6 million.
• Stockholders’ equity rose to $709.7 million at May 31, 2014 from $536.1 million at November 30, 2013, mainly due to the Company’s current-quarter public issuance of 7,986,111 shares of common stock for net cash proceeds of $137.0 million, and its net income for the six months ended May 31, 2014.

Management Comments

“Reflecting the strong operational foundation we have established through the effective execution of our core strategies, we extended our trend of generating solid earnings improvement in the second quarter, and remain focused on accelerating profitable growth,” said Jeffrey Mezger, president and chief executive officer. “We have produced year-over-year revenue increases for eleven straight quarters and operating income improvement for ten consecutive quarters. The sustained progress in our results demonstrates the success of our targeted land and land development investments across our operating footprint, the appeal of our product designs and unique home buying experience, as well as our sound growth platform, which enables us to efficiently leverage costs as we expand. With the momentum we have generated through the first half of the year and our robust backlog, we believe we are on track to meet our fiscal 2014 goals.”

“Increasing the number of new home communities we have open for sales remains a top priority for us,” said Mezger. “We acquired several attractive large land positions and substantially advanced our land development in the second quarter to reinforce the upward trajectory of our business. We expect to measurably expand our community count into 2015 with the significant investments we are making in our land pipeline. We believe that with these and other strategic initiatives we have underway and the performance improvements we have delivered over the past several quarters, we are well positioned for accelerated revenue growth and profitability going forward.”

Earnings Conference Call

The conference call on the second quarter 2014 earnings will be broadcast live TODAY at 8:30 a.m. Pacific Daylight Time, 11:30 a.m. Eastern Daylight 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 is distinguished by its unique homebuilding approach to provide homebuyers optimal value and choice, enabling each buyer to customize their new home from lot location to floor plan and elevation to structural options and design features. KB Home is a leader in utilizing state-of-the-art sustainable building practices. All KB homes are built to be highly energy efficient, helping to lower monthly utility costs, which the company demonstrates with its proprietary KB Home Energy Performance Guide® (EPG®). KB Home has been named an ENERGY STAR® Partner of the Year Sustained Excellence Award winner for four straight years and a WaterSense® Partner of the Year for three consecutive years. 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.