KB Home (NYSE:KBH) Q2 2019 Earnings Conference Call - Final Transcript

Jun 26, 2019 • 05:00 pm ET

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KB Home (NYSE:KBH) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jeffrey T. Mezger

realizing a 10% to 15% increase for the year, which sets us up well as we look ahead to 2020.

We generated just over $1 billion in total revenues in the second quarter and diluted earnings per share of $0.51.

Our housing gross profit margin, excluding the inventory-related charges, held even with our 2019 first quarter at 17.6%. While this result was lower year-over-year, we are encouraged by the composition of our $2.2 billion backlog, which we expect to drive gross margin improvement over the balance of the year, as Jeff will share with you shortly.

From a macro perspective, the combination of a decline in mortgage interest rates, along with steady economic growth, high consumer confidence and favorable demographics, in particular household formation, continues to provide a healthy backdrop for our industry. In addition, the buyer pause that the industry experienced in the latter part of 2018 has generally moderated home prices, which is positive for the market, given the significant levels of price appreciation over the past few years.

On the other side of the equation, supply remains insufficient to meet demand, stemming from the under production of new homes over multiple years and the shortage of existing home inventory, particularly at the price points where we operate. These factors contributed to the solid market conditions that we saw in the early weeks of March, which we spoke of on our last earnings conference call. On a per community basis, net orders were a healthy 5.4 per month, which closely tracked the prior year quarter's robust absorption pace.

Our business gained momentum as the second quarter progressed, fueled in large part by the significant number of new community openings that I discussed earlier, resulting in a 15% year-over-year increase in net orders. Each of our four regions produced a double-digit increase in the second quarter.

Net order value expanded by 13% in the second quarter to $1.5 billion. This result help bolster our backlog value to $2.2 billion, as I mentioned earlier. In terms of units, our backlog in the second quarter was up about 2% year-over-year.

Moving on to the regional commentary, our net orders were up 18% in our West Coast region, driven by an increase in average community count and a healthy pace of 5.7 net orders per community per month, compared to 6.2 net orders in the year-earlier quarter. In Northern and Central California, we experienced generally solid market conditions. In the Bay Area, we expanded our average community count, contributing to net order growth of more than 20%, while achieving an absorption pace slightly ahead of our Company average. As we are now successfully rebuilding our Bay Area community count, the division's order result supports our expectation for a sequentially higher Company ASP and gross margin in the second half of this year.

In Southern California, our net order trends improved. In both our Los Angeles and Inland Empire divisions net orders increased by roughly 25%, driven by community count growth in areas