KB Home Shatters Estimates on Tax Benefit

For the full year, KB Home reported revenues of $2.4 billion and EPS of $9.25, compared with revenues of $2.1 billion and EPS of $0.46 for fiscal year 2013. The consensus estimates called for revenues of $2.38 billion.

Fourth-quarter net income of $852.8 million included an income tax benefit totaling $824.2 million, which reflected a deferred tax asset valuation allowance reversal of $825.2 million. Excluding the tax benefit, net income totaled $28.6 million, up 1.7% year-over-year from the fourth quarter of 2013. On an annual basis, net income excluding the benefit totaled $94.95 million, well more than double the $39.96 million reported in 2013.

The company offered no guidance in its press release.

KB Home said that it delivered 2,229 homes in the fourth quarter, an increase of 9% compared with 2,038 homes delivered in the same period a year ago. The average selling price increased by 17%, up $50,400 to $351,500. Average selling prices were higher in all the company’s regions, and the increase was largest in the West Coast region.

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The company’s CEO said:

A particularly notable accomplishment in the fourth quarter was the reversal of nearly all of our deferred tax asset valuation allowance. … Among other things, it nearly tripled our stockholders’ equity from a year ago, significantly reduced our debt leverage ratio, and, going forward, is expected to shelter, on a cash basis, more than two billion dollars of future earnings from income taxes. … To build on our progress, in 2015 we will focus on key initiatives to extend our profitable growth trajectory and enhance our capital efficiency. These initiatives will emphasize generating cash from our operations, expanding our community count, gaining share in our served markets, increasing our operating income margin and improving our return on invested capital, with the aim of driving enhanced long-term performance and value for our stockholders.

Gross profit margins came in at 17.3%, down from 17.9% in the year-ago quarter. SG&A rose from 10.3% to 10.5% in the quarter and interest expense dropped from $21.6 million to $4.5 million.

Shares were up about 1.5% in early trading Tuesday, at $16.73 in a 52-week range of $13.75 to $20.78. Thomson Reuters had a consensus analyst price target of around $18.80 before the results were announced.

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