KB Home (KBH) is trading roughly flat this morning after reporting Q2 (May) earnings results last night. In case you're not familiar, KB Home is one of the largest homebuilders in the US and has been in business for nearly 60 years.
It sells and builds a variety of new homes designed primarily for first-time, move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums. It offers homes in development communities, at urban in-fill locations and as part of mixed-use projects. KB Home lets each buyer choose their lot location, floor plan, décor choices, design features and other special touches that matter most to them.
KBH has ongoing operations in the seven states and 36 major markets. Its primary regions are West Coast at 29% of its homes delivered in 2016 (California); Southwest at 16% (Arizona, Nevada); Central at 38% (Colorado, Texas) and Southeast at 17% (Florida, North Carolina). In 2016, KBH delivered 9,829 homes at an average selling price of $363,800 vs 8,196 homes in 2015 at an average price of $354,800.
Turning to the MayQ results, EPS nearly doubled YoY to $0.33, which was a good bit better than expected. Revenue rose 23.7% YoY to $1.003 bln, which also was better than expected. Homebuilding revenue of $1.000 bln was better than prior guidance of $880-940 mln. As you can see, more than 99% of revenue comes from homebuilding. Financial Services revenue accounts for just a small fraction.
Deliveries in MayQ rose 11% to 2,580 homes, with double-digit increases in three of the company's four regions. Average selling price increased 11% to $385,900. Excluding inventory-related charges, homebuilding operating margin improved 90 basis points to 5.6%.
KBH does not provide specific financial guidance, but they do say that the housing market recovery continues is on a steady path, supported by favorable industry fundamentals. Recent improvements in consumer sentiment and employment, combined with relatively low mortgage rates, are signaling further strength in the demand for housing. At the same time, KBH says the supply of available homes in many areas across the country remains insufficient to satisfy current needs.
In sum, investors appear to be pretty happy with the MayQ results. In fact, the stock has been on a strong run since mid-February when it was trading in the $16 range and today it's above $23. Briefing.com believes that the Fed's decision to raise rates very slowly is helping to stimulate demand. Also, the lack of supply is helping as well. Overall, the housing market appears that it held up quite well in 1H17.