Taking a closer look at the results, the company reported EPS of $0.84, more than doubling the year-ago period's figure, while also exceeding analysts' expectations by $0.07. There are a couple factors that led to this outperformance. First, housing gross profit margin improved to 18.1% from 16.5% as the average home selling price increased by 8% to $416,500. Secondly, as noted above, KBH is operating more efficiently with SG&A costs improving by 50 basis points to 8.7% of revenue. That is actually a fourth quarter record for the company.
Housing demand also remains robust and management expects that trend to continue throughout 2018. For the quarter, total revenue was up 18% to $1.4 billion, topping the $1.36 billion consensus, driven by the aforementioned boost in pricing, as well as a 9% jump in deliveries. Another positive is that its backlog rose by 9% to $1.66 billion, which bodes well for future performance
On the topic of its outlook, KBH issued guidance for both 1Q18 and FY18 during its conference call last night. Specifically, it guided for housing revenue of $840-$880 million, which is below the $894 million consensus. But, it expects gross margin to improve further by 90-140 basis points to 16.0-16.5%.
Additionally, its housing revenue guidance for FY18 is inline with expectations at the mid-point, forecasting $4.5-$4.9 billion vs. the $4.69 billion consensus. Gross margin is expected to continue improving throughout the year with KBH forecasting FY18 gross margin of 17.2-17.7%.
In regards to the economy and housing outlook, management is quite bullish, commentating that as it looks to 2018, it sees favorable conditions in most of its markets with solid housing demand due to healthy employment, rising incomes, strong consumer confidence, and a tight housing supply. At the same time, the company is anticipating a positive impact on earnings from the tax reform bill, which will lower its effective tax rate from 37.7% to an expected 27% in 2018.
Wrapping up, conditions are clearly favorable for homebuilders such as KBH, which should provide a strong tailwind this year. But the company is also doing a solid job on cost management, leading to impressive earnings and cash flow growth.