KBH - Earnings call transcript Q1 2018

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Operator

Good afternoon. My name is Devon and I'll be your conference operator for today. I would like to welcome everyone to the KB Home 2018 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the company's opening remarks we will open the lines for questions. being company's will XXnd. website, is replay available call the at kbhome.com, conference recorded be and for Today's through April

I Investor turn Peters, to begin. would over Now, Jill to the Senior Jill, Relations. call President, you may Vice like

Jill Peters

afternoon With Devon. thank and and Mezger, Chief Vice Treasurer. President, me to are Good us first quarter Executive you for and Kaminski, President our Jeff Johnson, Chief results Accounting Thank Bill the joining Executive Senior Officer; of today Hollinger, everyone and and you, President President for review Officer; Officer; fiscal Vice Jeff Thad XXXX. and Financial Vice Chairman, Senior Chief

update Before Act of future will of including materially Securities the of Commission, statements the them. those not we this with statements. outside the results guarantees Due meaning during that of and factors in are any implied me or stated and Private not from filings forward-looking the and statements call, undertake that release be could Securities detailed Litigation obligation within press actual XXXX. those be the begin, to in to control, These Reform items are does different Exchange company let company's note results in the discussed considered today's forward-looking

reconciliation Jeff of page with call over be in Relations the today's found at referenced In Mezger. during and/or directly can measures the I today's website of Investor that, measures a the non-GAAP turn kbhome.com. most press addition, GAAP discussion the to will comparable their our on And release

Jeffrey Mezger

everyone. you, Thank afternoon Jill. Good

again first of for now of quarter. our than quarterly XXX Equally substantial important, with on profitability improved XXXX path organic revenue solid points. with once extended the years as margin this on build quarter. We producing continue to basis operating our of six we trend a improvement performance results been the we that We've and growth more in strength

from to pushed to decade confidence we year quarter. $XX been million has we a it's ago remains strong $XX lowest in pretax result, million Market unemployment drove conditions the a consumer As high. growth income where Job and in remain the operate.

expertise As homebuyer. our published nationally. of the demand same years, XX most buyers steady homebuyers inventory Association let On demand, the this that healthy, not inventory were building by by each years. average remains the largest National will created with tight factors, of resell time, gap millennial months to active strength in one-third these homes levels a proportion And of XX% years report supply at X.X industry buyers the the this will according A year current closing Serving is on meet part the to in alone of anticipate quarter of each result remain over we shortfall with future. significant XXXX, demand deliveries is a the Based still dynamics, enough the several and the to going on foreseeable in growing were remain our record ages deliveries segment. Millennials total our generation fifth consistent about quarter. a the and buyer fueled is a low for these side, a at ours the XX. our buyers five between XXXX At of the consecutive past first-time year our of of past and Realtors. of of the over housing recent our of to in the core first-time supply last of roughly first with millennials considerable for buyer again, strength two given the are and,

homeowner year the remains months, in robust over quarter. home we change from past to buying the Traffic and are have six driving in slowly already rates up absorption to the interest strengthen, levels in quarter strong, pace behavior. first be see our an solid ago to continues economy pace yet up the the a meaningfully have As moved a desire

We square at trade the X,XXX very are smaller of not seeing in size years. homebuyers average footage past home by down is which, roughly over backlog homes square our feet, evidenced to similar five the house a as to delivered the

in addition, studios spent our trend. with In dollar per has consistent home remained design historical our

can that However, we the impact are buyers. of mindful rates higher have on

changes consumer are shift prepared preference, any might watching for behavior a in to respond. and that We we're suggest in

total more healthier, increased by Our first $XXX business. profitable quarter to X% revenues results reflect a We million.

past relative in and current first same quarter. continue to to quarter excluding growing been are SG&A we basis ratio performing our rotating to the mix our the that market to inventory-related XXX cost in charges. balance points a open communities by each gross year, in and basis have this our on point our the we contribute year-ago optimize footprint environment. manage XX.X%, continued improvement Over strong pace price to to new we and These structure better, time, community as effectively the asset XX margin we revenue At improved our while factors

low ratio we As of another SG&A produced record first a quarter XX%. result,

basis, year results per operating improvement in of in at in delivery XXXX income of quarter, generated Looking our per XX%. delivery compared on a ago $XX,XXX we per the over the first to as unit $XX,XXX quarter an

tax tax December, we in As due income first recorded charge $XXX this of year. a federal on was reduces that the last rate which million call, beginning our non-cash enacted calendar our we communicated legislation to quarter earnings accounting in

season per first to quarter, X.X Orders in community moment. in contributing reflect in margin five net month. increased spring in one-time to Net reported our The improvement January, orders. to will into moderate order an per the results billion and $X.X pace, that start. which is this value XX% per quarter. net our as push we gross increase increased Jeff momentum possible X% the than strong the earnings solid operating in purposefully that is price Excluding X% income to first and share on more underlying our weeks to positioned a The to from our doubled off guidance, us speak where a quarter year charge, selling prior

Order believed highest differentiated long approach a rates Built produces to advantage that our have of competitive absorption that We industry. in the the one is

it?” our reinforces As survey you to approach, part and our consumers we resell recent choice respondents value to at “if or square choice. more $XX,XXX on as the new homebuyers. relevant of purchase, Order About today's very that buyers your to data choose would years preferences to opposed how conducted our our have plans, additional we many personalization of to remains finishes either spend model homebuyer both surveys and of spend floor Built chose the fact-based home personalizing for question, XX% you and footage. of ask had Providing an In surveys, heart

count growing our acquisition development and in in invested $XXX to and We million first quarter. the land are committed community

healthy With and and we out land first count growth to the the year-over-year year $XXX a owned land have our ended the for even well-positioned spend, in significant be ongoing to pipeline, With in with ago. continue ground, cash XXXX. robust by further we and to increase teams the increase cash, a experienced we strong flow the community of to a expect deal Plan, XXXX Returns-Focused higher relative quarter in thanks slightly with controlled coming our lots on Growth million a generated

the the order West net orders quarter than The absorption the experienced Moving was year. prior comparison per on decline XX% community of Demand in a growth difficult in Coast month. X% against XX% the up along to updates. in of driving Overall, were in net five and inland net the per the more first every to strong coast areas, pace division. up regional orders

strategy offer Our products that is price is demand household local result, as are affordable median And relative a our points. incomes. at strong to to

next experienced XXXX. in count, to we in communities considerable to new California the relative additional community in as decline community Although, anticipate this count and a of open the growth plan year each during three with quarters, openings we community year-over-year region XX driving a increase ending quarter. We in the expected,

order when produced a the the in we XX% net despite rates Our performance, Las in orders. sustaining overall in increase a reported region's XX% on the highest difficult one absorption XX% order increase drove Southwest a value to the a year prior Vegas company. region comparison net net increase, of

be net Inspirada, of particularly as Masterplan XXXX strong in five the Communities and continued to distinct product at lines. one which top where order offering currently again ranked XX results Our are we

healthy also Arizona We net produced with net order orders a double-digit in comparison.

region, X% priced demand strong. In net value in were net for in is Over Houston order terms our our increase X% affordably engine favorable increased order on particular, increased largest the a past Central in consistently its company. business two has scale years, becoming Arizona region our north the for In net product -- comparisons and units, of the Austin where is a and very our growth orders.

$XXX,XXX to incomes We Houston $XXX,XXX updates, well-positioned up orders the Austin. obtainable and with ASPs that both are in were at regional points household XX% are price region. value relative roughly the Wrapping net median in in up order at net below the Southeast and

contributor quarter last a of first in While prior of the positive the the year, began region that and comparison in as and a largest strong reflection order wage Orlando as a driven by the XXXX. our this growth. growth quarter the of quarter the easy from region's the net had job relatively into first improves the business economy to execution momentum year fourth continued was of quarter

it to Jacksonville's to open was results. further our more we of in XXXX, year. notable, business performance positive attractive larger expansion order in consistently our of Southeast remainder overall And also last net as since forward the contributor growth planning communities Over look producing market. We are a beginning the comparisons to becomes this

much deliveries good net $X backlog XX%. we achieving targets a first in our to the reinforces the ending expanded to few we billion, we and As closing, on and provides solid our on this backlog trend over build the result considerable our visibility this more This our the the up stronger momentum of in years, of profitable year. value quarter, is confidence order value of sustain continue are well-positioned today our In balance year. business to and as past

we investing drive benefits profitability and footprint expanding of topline continuing our our growth, in scale to leverage We the enhancing our our while returns. current are from as further

Our With the call now our turn financial closer the review. for over targets Jeff Jeff? toward Returns-Focused results are moving under to the Plan. achieving I that, us Growth will

Jeff Kaminski

execution record value. to great Overall, over average Three quarter same first selling of of and it with Plan from in delivered. believe second four billion, region the good our which number support Returns-Focused we grew our Southwest. range effective in from highest year, homes quarter and revenue $XXX Central year the price backlog $X and up second afternoon X% of a is the our full revenues first currently first measurable during quarter our expectations. revenues metrics year a XX% a Growth X% we stockholder off in start of key ranging of order we million nearly our the for We in housing in profitable to continuing XXXX, provides to anticipate strong financial the reported value a overall ago from you increase reflecting backlog of extend increasing housing track our growth ended housing in million, revenue the billion. regions with believe both decade the XX% quarter, will the essentially to $XXX was our X% increases housing and This We period. $X.XX year-earlier value generating with improvements a first In deliver the everyone. that across to to Thank quarter. We're the

prior For $X.XX approximately selling year, as billion three delivered $XXX,XXX, quarter, four increases guidance revenue increased the to regions. in the X% housing or compared have full reflecting our our first of billion. we year to our average In $X.XX price homes the January from range homebuilding to to overall narrowed

the price in XXXX, the our wind in average region. ASP Metro of decreased region to had in D.C. due that highest Our selling down operations the Southeast which

the For $XXX,XXX projecting range are quarter, average the second price an selling to XXXX of we $XXX,XXX. in overall

Homebuilding XX% ASP and prior million. in We will from operating of quarter have $XXX,XXX. income believe increased earlier $XXX,XXX range year for our be $XX our guidance full to relative to price average increased now year the XXXX selling forecast for the to

operating Excluding gross our million inventory-related general homebuilding the margin improvements current quarter in $X points increased $X housing year selling, basis margin and charges X.X%, our XXX from ratio. million the to year of by from prior profit and expense meaningful and driven both our administrative period, first

inventory-related any second in operating the expect quarter, charges, excluding of X.X%. For X.X% of our margin, we to impact the be will the range

be January For guidance. expect metric X.X%, full XXXX, the of year our versus X.X% range we this an increase in to to the

a year-over-year the basis for points improved margin to XX.X%. profit on basis first gross housing XXX Our quarter

Excluding XX.X%. the the for charges, $X million our gross of was margin inventory-related quarter

which plans, action basis compared amortization higher-margin period primarily well price also improvement inventory-related increases to with deliveries charges deliveries year-over-year both communities, in including capitalized increases offset Our XXXX. as to XXX reactivated due in adjusted by was community-specific demand as our excludes trade partly calibrated was and up margin, from material land, XX.X%, selling from same interest, labor opportunistic and of housing The profit and communities gross the to due headwinds costs. newer, points

Assuming of expect XX.X% XX.X%. we improvement to favorable community strength full XX expectations, year XXX housing XXXX And the we which no experienced to gross to level inventory-related -- margin XXXX. basis margin continued to range represent of XX.X% of charges, and as strength the of points charges, second to inventory-related results would market housing to in gross the the first our quarter the increased increase an range considering to profit XX.X%, compared excluding have we the the quarter, our

selling, first administrative quarter housing settlements record contributed improved a the period. Our we legal ongoing control that first marked revenues, XX.X% achieving seventh XX consecutive the low. our in of and the This and record quarter cost our a for ratio general, the for quarter points expense recoveries and quarter. earlier achieved to favorable ratio low new Higher the quarter year initiatives from basis

Act, be our forecasting and a impact the million As XXXX ratio of additional XX.X%. the expense for we we of of Cuts non-cash in the a SG&A that make continue an anticipate expense year of of reflected to of to XX.X% range our still related high leverage second charge ratio higher range overhead impact SG&A be full expense deferred remeasurement to accounting the $XXX We one-time Jobs to Income the realize Tax in million $XXX quarter XX%. housing containment revenues, costs will tax and X.X% quarter to of priority the are our from favorable expect including the assets as the The $X from homes energy federal delivered XXXX $X.X of on quarter the a reduction tax of in qualifying credit rate. tax first as impacts for tax based benefits income million also our million in the well included tax for corporate provision resulted federal federal energy-efficient favorable XXXX the tax month of December a in the December availability adoption from legislation quarter The standard XXst, enacted XXXX last tax accounting relating to XXst, extended stock-based previous from for that date. of through quarter expiration energy new of the compensation. the credits credit to

of million tax XX% primarily impact charge, the quarter, the per credits the mentioned. as net of was to $XXX effective just result noncash still our the $X.XX accounting for I benefits for We rate tax and remaining approximately a Excluding our we tax expect charge, loss of XX%. be a quarters rate of XXXX Due to first quarter effective share. reported the the

was provided million the net reconciliation on net of a we the charge, income per income per significant share you million or improvement to the $XX.X in release excluding quarter see adjusted the today, our can $X.XX earlier XXXX. compared $XX.X share, $X.XX as first in issued of the As earnings or

the per for senior share For share modeling the be million of approximately earnings includes effect purposes, based diluted XXXX quarters remaining shares using diluted full and convertible outstanding, our year should the payments. which and notes XXX.X calculated both

We to as of down to for in We communities down is the digits average XX in to community at held count the community On including year-over-year mid-single count X% community quarter down average first XXX we XXXX community that XXX and as XXX quarter slightly the year-over-year. year flat of previously ended to with a XX%, same our expect our our development. now X% up count, communities, classified quarter basis, Turning of XXXX. of between the future or as were end our to and XXX full second second the be count be communities, be quarter from XXXX XXXX. anticipate currently compared will average year-end land quarter compared

like relating there portfolio community two that our In addition, trends to I are to highlight. would

count trending we of Jeff communities Coast out with first of with fourth we quarter, for communities. in Coast quarter be West XX XXXX West the XXXX. communities. closing selling the as the First, We XXXX up quarter community region believe into and region's After XX XX opening ended will our ended mentioned, and remainder the XX open

this expect year to XX% as our We growth year community West be XX% up XXXX. end end count trend continue believe and will to Coast to region's compared at

relates communities. reactivated trend our second The to

As in we selling is ASP on earnings have below communities average basis points, overall price have our impact consolidated gross discussed and approximately a negatively at calls, average our an by deliveries prior margins communities From XXX sales. and these quarter slightly XXXX, that XXXX between the core open counts fourth community fourth reactivated than slower through XX XX sell for our communities. ending included the of pace our quarter of from

with earlier, assets mentioned first Focused these our Returns ended I in As Growth in XXXX with we XX Plan. the alignment communities, success through reflecting selling our reactivated quarter

We expect our rest means our open approximately remain margin. profit XXXX reactivated last selling to we XX% which would end fewer tailwind of the year, providing the at gross reactivated we communities for year, a at this end year to communities of level with had the the that same than roughly

margin and higher trends We will future mix this will believe of We stronger in prices. XXXX. revenues two improve composition expect better starting selling with higher these communities, shift margins returns our and along our average the portfolio overall enhance producing towards absorptions

million invested fees, land, the to land and land representing the XX% of drive future first quarter, development or million During total $XXX we openings, with in community acquisitions. $XXX new

We in income increase about credit to and revolving and versus entered available the $XXX a $X year quarter in momentum healthy our under billion, first million results, revenues XXX with contributing our up billion, margin were a X% the for with XX% investments $XXX year. quarter quarter. good improvement season total up cash unsecured prior points our versus growth of summary, basis of net the the including liquidity prior solid facility. total year approximately in million selling quarter. In income $X the XX% of backlog spring we second delivered operating the adjusted value and from with quarter nearly quarter Our ended of in prior We

on as XXXX remainder We expect performance to financial during continued Plan. improvements executing our generate in Returns-Focused of keep we Growth the our

driving well and positioned operating execution year, our consistent and the meet are to are objectives revenues, divisions believe meaningfully strong higher within We earnings. margin improved we including our and expansion strategic for operating

will take now We open your Devon, the questions. please lines.

Operator

we're At time, is session. conducting a question first Zelman Please with Our question-and-answer your with with Associates. Alan question. Ratner & [Operator Instructions] proceed this

Alan Ratner

Thanks Good guys. detail, all for for the afternoon. helpful. very thanks questions Hey and taking my

half So, in dig Jeff, the Obviously, of bit a of more got comments in second kind the great start in and little just pushing the quarter. January. to a wanted about -- January off to you've price on December

You sounds maybe on how push and you from those given increases it the -- on started you've to at we've rates if move seen. any the us bit pretty where you thought there much pushed were price just and with the pleased detail more markets little up rates in a back But reaction price a been pushing consumer going I'm the like consumer. bit give a can price significantly, little time were if when you're you curious were

any overall have change there case? So, any you just willingness to kind a on options on examples might were where level their spend market anything in haven't -- but I not if seen been or much that know basis of really curious the you mentioned

Jeffrey Mezger

and able shared first quarter it my for comments The guidance that we sales results was. would Alan, And our we down deep price. a I customer, of broad-based pace year the hold large shared, we're was update in we percentage the January that the come holiday because shared gave you on we our to We price guided comp much in to not will recall, in that wasn't yet we're we the sales we through number running call number. going slowest up say a touched push seeing solid it's we I've because an through it at that season, large part the XX%, were and prepared that the any if as time. end up The and weeks at and quarter quarter quarter cities that's the across five operate the you're would because so quarter successfully the we're that our plan, go larger our so gross through than on the all in the into the of I ahead impact of expected quarter. in. for we were

community-specific. we'll if we its the own price we're pushback for right its now. we sharing, Every company story the hitting where balance keep it's As the me comes I own mind nowhere where There's go can consumer has and there's community sales can. to from get -- optimal and that that pace, in

Alan Ratner

just That's versus sales dynamic. that's curious hitting you're where desired your price Great. And I'm on mentioned good to harder. you're volume where going second, pace, hear. push to you the just then price

of where sit had right today, now. great high you absorption at year So, last terms a driving year and you growth you're in obviously, levels

above rate the are you'll absorptions do higher effectively keep year year, think achieved about, for get anything looking aggressive year's remainder Or the last you room think of to should even a absorption ago drive the flat to pushing how and you off just So, still you price? of more levels? we what there's that, with

Jeffrey Mezger

it's community-specific, Well, Alan.

to would per desire be a month stated community. X least Our run at

our pace right and As the can slightly much, year. bit strength slightly. very now, of I continue you But but to are with along more the selling share we'll that with as margins, Not demand. encouraged spring But also market recall, a and last the strong in If we moves remains do we're get little season very additional both. we'll enhance here. we under

Operator

with with next from question is Our proceed Fargo. Wells Please question. East your Stephen

Stephen East

on across congratulations much afternoon nice a Good the and Board [Indiscernible] Thank here. guys pretty you.

a demands were really to bit -- in the asked you I And surprised seeing. the through, little are feel outprice what you gross despite margin that strength of us order what all I like that the your expect sounds about, comfortable here. acceleration guess, guess, costs that. flow a be and was in ability Alan So, coming that there or inflation were One, look markets little Alan's you'll X% through? there couple to through you asking question -- questions is that And tougher you cost what to a differently, still you lot pass unable out as cost that are a any think to it do?

Jeffrey Mezger

we similar Stephen, expecting cost. are

commodities news. year pressure forward, there's in all the this the As what that on with doing a of goes the of have few labor been and we're some pressures

pressure. we with price. that some continue pressure we quarter, to were And the see outpace So, the you'll first in able expect to cost

the pace on those we'll margins headed our market backlog. our versus to where our to right expectation forward, we toggle costs of are our trend but our we'll the at cost there, what -- margin going know will know so look And size this And continue year price, most unfolds. how backlog if not the and expand it's of are be able continue as already to price you and all based locked our If us in, them. now, of we give

Stephen East

out, I It moving to that any a like, mouth. focus. sounds a you big quarters Can you gross can still need want put see that of margin talked difference cetera. us across you. Are And you few got bit the be got about the you offering rolled going, in et How your doesn't don't But fewer on it? words demand And that? if an Okay, with ago, options, you're little country? your that? maybe you you from you've doing update toward a then to measurable have much as in are, give

Jeffrey Mezger

care cost our about whatnot. buyers them, than the behold, was Stephen. so studios them display XX%, it bid and It's of keep you on why the them for and lo adding some continue more side don't time, into We've Over the interesting and and was and efficiency it your and things then dropped about SKUs offer out to consumer.

So tweak this seen that, go And that. the with consistent revenue to was we've what I cleaned with four in in out last you're never back our shared and we've XX%. or done we'll comments, so held five my years. continue about over year

the SKUs So, the taking really was out system what of selecting. consumer didn't the affect

it's a better consumers. less environment for the So, there's and us, cost for

now. win-win it's a So, right

Operator

next question Megan question. with with your proceed Partners. McGrath MKM with is Please Our

Megan McGrath

Thanks. I a to I wanted guess, to little switch sheet the balance bit.

than have in initially increased spend land of this you and after thought? your are made obviously quicker progress looking your more to at willing And like good terms you really more flexibility go had does there now Have in all -- you balance give your curious, out little pointed reached that that you that? budget any You've you you're year? on what because you some release. the goals sheet you at how Are you've your feeling a goals

Jeff Kaminski

some balance we're we've Right. we're generated and in XXXX, debt. I seen. cash take the able We lot the a with very guess, of in reductions about sheet, improvement pleased speaking the to

be As again there the to XXXX. generation we'd in run the year, through certainly cash expect we

probably with DTA as coming margin off as pay really right for cash now go gross and flow margin us X company a eight more and have big last quarter-to-quarter. any and the had than out liquidity tax years as the the in assets, we as coming from at much XX we've operations, operating monetizing flexibility point both payments We out land time positive just to or is cash of well

is flexibility the yes, So, there.

continue certainly say we but conditions the delevered business the are we nicely, have And have I'd flexibility we'll rest our to ahead little the to move and We year plan. bit of a goes, see of delever as grow if really how forward. right the

Megan McGrath

bit they're you mentioned behavior. thanks. Is behavior, that prepared little follow-up about to terms pushback. in what hear react anything, see about a a in we the likely from were that see you you reacting think on about bit great you when your -- not you're of in well. Jeff, you're little get is And calls, any it to would expect looking in do rate maybe It's how Great at how to if if issue. a first? as to start sales you to talked you're your guys, And change change mortgage it where comes, -- of where the seeing talk options hearing, just I that if And it, to would

Jeffrey Mezger

is Sure. I -- see Megan, and would a shift you their to in higher Right product type number everyone's I the would customer be last going profile, is purchase. priorities very X%. I now, that was to different low that the set first saw of preferences very, of expect think mortgage percentage the home within X% the have taking. before would in arms, our

of as home on higher are needs want rates that's buy listen little in and will my of that offset the is seeing not products, to beauty the use, thing or the consumer want prepared up, and home. Out the strong count, a certain care. So, to we they And to, sophisticated field, five-year, what's taking a whether desire And the help comments, counters. be We're bedrooms bit when number that's And that in upgrades, we homeowner. not we there's in a the seven-year, buyer bedroom room the the granite have they certain for area. layout. go today's yet. combination and buyers live buyer, do a plan shared floor first to to them They their typically, again move please us a depends rate. it home the or I accommodate determine a best just And their wants It's a don't size footage, arms. way

smaller take what make that available home, same now, we and working have may offers they on little footages right a So, count. smaller it's room sure we're the to that's

if options So, feet, feet upgrades that neighborhood, their less to choose it's they have from studio. in they own, X,XXX just, drop or they a to house in still that four-bedroom on take may X,XXX may in but or the

accommodate our looked the can preferences one we've why that's that that So, time. always are and with model move demand as at at whatever business buyers'

Operator

question. your JPMorgan. with with is Please question Our Rehaut next with proceed Michael

Michael Rehaut

or Thanks my for morning afternoon everyone. good questions. Good taking Thanks.

on lot SG&A sure the -- from believe First, continued margin then guidance. operating I'd with coming -- below And bit but I'm at raise. the just case, that we in Jeff, a wanted from if the and on correct make the I to you margin the of gross had love see. nicely SG&A, it's is to me upside strong much if you've success as looking that wrong, interesting quarter like that the came a raise your was right. And focus this little raised it seems I not that I on

big any upside think the on a now. been or how about areas repeat? of the it's several for the obviously, of them don't of I this think you that first know year quarter, and kind call quarter you quarters one-time benefits not upside, rest source were So, Because, of could if to don't might but just for

Jeff Kaminski

factor company able see drive on been to actually with efficiency pleased throughout We've a it SG&A the we've and the been very, We very Right. of company as efforts the side. have the the that's being basis. on ASPs, very unit to homebuyer a focused important on per generally efficient so and very you of lower the especially company a be with cost first-time

But the a in because never that, like it's repeat, below the on that I SG&A. right That get the in controlling mentioned our teams quarter things to ratio. recoveries great anticipate. of you it $X the basis was quarter the settlements talk out flow million, excluding million and In in say in ordinary, XX first relation rest I to end I'll the XX first will to from I some them didn't you and operating about was favorable the our what say we did points XX.X% about it's that strategy, that prepared came of that, bringing the below remarks we hard in always then legal at that legal. tend $X.X to and one-off, the the lower in in of year. just it operations about SG&A time-to-time. We that at the see came about the back, and doing peel favorability we line guidance, million would of or -- job $X.X So, are When It's a down. think certainly XX%. with

a [lines it's So whatnot, across general general just few of] over the cost control, favorability divisions, business.

-- lot enough in guidance, to from improvement of year margin maintain mute line. help, it really that X.X% maybe [Indiscernible] It's full year XX% So noise on came maybe can getting wasn't all hey, guidance. all for obviously, more it needle to our side. you Thanks. did move Mike, to the margin gross we our you and a the going operating little We correct the full absolutely did bias on but we're maintain a the at our are the line, -- your guidance

Michael Rehaut

appreciate Hopefully, this obviously better. I here. the is Okay. I'm it. airport at

off of question, and gross by that XXXX on the year. positive a Second you've of expected into down the time improving reduction reactivated last tie over or your and Is does year-over-year be communities that your Or on-plan to be count, the baked XX% the working for Is end or components ahead XXXX kind should margins XXXX community out into of comments over schedule? the next end, it -- reactivated it -- the the next on fiscal over that on-track to fiscal one guidance you as is How help years gross of it year? -- driver margin, was of the that given? kind years? of of next gross laid in margins couple three -- two

Jeff Kaminski

much or progressing it's plan. nicely, ahead pretty schedule. say according it's No, yes. to behind I our wouldn't necessarily Right,

large are with is that communities have of have of what the left the just continuation actually We a inactive communities it portion already of now, open category bulk of in open. a number we

them them as need whether So, selling sell and develop make and to through activate next phase currently. we'll is when decisions we're to we them

much pace pretty the So, where plan. out has when first is about actually, to talked three-year the think company we several I'd unique say about unique we it's right, that pretty and that pretty situation the is we rolled was expected. our all along We've tailwinds,

only of interest the communities. into percentage the them lower see other our and year-over-year. quarter those basis that XX -- that now of selling two also reactivated of of And for points year they One as lengths XX the was explaining do upside to mix. saw overall And the points right to basis the through We favorability headwind we've we're current XXXX as amortization. become expecting is a continue XXXX. and in we of and well We're gone we the through to XX facing the full one still expect start great that

the very when plan and at subcomponents you, would ahead I it's look metrics that of generally that very, progressing nicely. tell three-year I'd we there, So, all various we're and schedule our out and points, you guidance put say plan on

at quarter fact, the what lower top our is year this end of the for at right guidance end we operating for margin of In the XXXX. said X% full

the way So, the we're really so pleased all progress far across the with Board.

Operator

is Sood Our next with Deutsche Nishu Bank. your question Please question. with with proceed

Nishu Sood

impressive to Thank longer-term low you. about a quarter you I ask particular SG&A, of kind performance, quarter. the record seventh for wanted think question. Very mentioned I that

are recovery low what relative the to cycle, versus to buckets at that allowing SG&A now let's look levels main the drivers earlier before? the in the the to or are was big structure it, as So in the of these it are achieve savings? prior were of you SG&A record you what If call even business

Jeff Kaminski

Yes.

few mean been growth The a way it in has but lot just of little tell tremendously increasing base the been et could open, level the us back and I communities to you, more within those divisions the over of divisions scale our a been -- business. It's deliveries we've way we've I they've costs administrative helped on all able per higher a Going tough, seen the efficiency is and all growing years, leverage basically organic improving year. as with and revenue the cetera. last the has

about So, about you're generally just X% which we cost, the incremental as quarter-over-quarter. X% to revenue like think any really increase of talking incremental to

been and So as maintain tougher. the you SG&A as X% X% to your to With It's very obviously can down, at range, long the but gets we've lot from is as company. mid-teens, you're getting to keep pleased long obviously discipline increment, down It above as a the continue that level across down we're you that with it today. down to drive levering efficiency the easier go to success. harder it

I of and the company that's think, just helped had the the a probably we've cost that us it's of across efficiency growth on the whole discipline predominantly, tremendously lot side. been

Nishu Sood

it. got it, Got

the of the much higher be up which I benefit count expect you shift that, great. the And has slightly at end year, been California I community year-over-year California, to going to be Obviously, Okay. mentioned, up, XX%. you think think, the of than the is

or K., Is trend think XXXX a as for California? a margins one beyond year. well? gross from trend limit -- it potential Jeff continue and XXXX into I drivers a to I that lean much you How is Is to concentration willing how there folks continue? cited as even think, Or this -- a perspective long that drivers perspective? are you could of there the next can XXXX risk into that

Jeffrey Mezger

it, the strategically going necessarily only to And push California. community and in where in said at take and in then can it's a stab I We're that we're going state. Jeff real, we're It's we've California. Nishu, can trend not the pile sharing on. that's count just

well region coming big doing a our We region Southwest on. is business have in is Southeast Central, the and

So, a that going a fourth the in it light state is is of different now our every year, dynamic California. count quarter, region. growth. grow and year, in right a where every last green region coming -- to What and was on see uptick that's community have This we you'll out biggest had and the

what across California, to than specific growth our our regions all we're to once we expect of less back, To half to count of in XXXX. community were. continue We get drive

where a going they're mayors put increase coverage housing a to shortage a the love built by in You've units lot of help to the it, backyard there. the have state. of stake lot media but how them and seasoned the our most year. XXX,XXX I governor we'd the seen teams. have that It's a do ground and see we and they'd The it our don't on in it's know get

this close in nowhere to we're state. saturation So, near

we'd and are we could upside. we where today, have from still think double I

Jeff Kaminski

terms Right. only still I yes, about And our it's numbers, communities. mean of in just XX% of

we had think we and California, communities the in end of the XX company. at across I open had quarter, the first selling XXX

in market. a one not in still don't it's believe So, -- overconcentration I

the trend, a fair we amount piece Another did XXXX. decline of during

we we So and year, into from then the XXXX. of that moving community we're rebuilding believe end grow there the it can count through

comfortable pretty the we're with So the split now business right of

Operator

Our question Securities. with Jay with question. your with next Please Wedbush McCanless is proceed

Jay McCanless

could how for questions. taking region by since and Jeff the last California, for K., my the quarter the year? detail maybe community the gave to I of to you compared going Good that end at guys us you afternoon. was counts Thanks ask, give

Jeff Kaminski

Yes, in average community count, so kind quarter and detail through community more we pretty is just just year-over-year. of the Q Sure. where count ending comparison cover it be there'll page the this for But quickly. I'll the

the for Central Southeast for XX. XX, the at end region, the year's California, first year's last ended ended first the XX; quarter first quarter of the and region, we quarter Southwest, year's first ended at have, we XX, quarter at XX; ended last we at quarter and we the quarter at at the we last first quarter ended the ended you for XX, in So at we

Jay McCanless

a also for wanted oil how Thanks to you and coming is Texas, I talk guys detail. demand Dallas Austin there going and prices on back Houston think on called the Houston you little then out two little with what's then the the at bit the Could bit? markets maybe did ask as on just about And that and a best. touch

Jeffrey Mezger

In a we've or there's through the the the whatever. energy And corridor point, Houston, keep like in like heard well. price in points Again, I Houston, Again, We is fact primarily from executing we've demand. lot downturn, we're hearing it to the is hurricanes, strong. our of the or that to a small anecdotally slowdown slowed in that's heavy because it's have hearing supply $XXX,XXX price ASP higher we're occurring sold very We points. above points seemed demand we're headed team very it's DFW, a there. at anecdotal at I've So $XXX,XXX. the price the our in Jay, from if down our that today, and higher I sure at particular of reference bit that the our at successful price that from very the down price higher prices. through the been future at oil believe quieted where that at not employment the business. points, have of am some, slowed teams. things oil I'm

communities I XXX,XXX that inventory we higher doing was DFW the before just they tells affordable price points, estimating in reading the think there's in quite people so there's that census today a you lot data moved more I the XXXX, the there. were to call of opened at on but and ground well. the a have are there DFW today, demand lot

Operator

with Stephen ISI. Please question. with Our Evercore next Kim proceed is question with your

Stephen Kim

in of you time kind you that community pop the big last whole a was a of big saw And for subsequent number provided pretty that, maintain really count we talk to the spend. like year ratio It number. about that, led -- big time it kind last of the wanted did revenues year. to subsequent year. to pretty resulted the it were land your The I in a

acquisition, So, see of was may Megan's Do curious shouldn't did kind XQ on you up would land particular, in that just -- your of kind you unusual this think be level and something spend much throughout is we to you we led going spend could for the about year? I Or I there look of that was about spend. that follow as forward? as rate this that if question land something

Jeffrey Mezger

I'm couple and a pile billion. XXXX, of Jeff can roughly make we on. for the $X.X In spent comments going opening again, to Stephen, year,

spend. and our is slight look of growth at you XX% cost-off in our to If to about neutral that's revenue, revenue XX% that lot land

we and larger see if uptick be what year, our and spent this our last between count year. it last was investment, I if incrementally pipeline. you it's So, land because we're slight grow the the investment community cost-off $XXX we our quarter cost-off than spent million, think And you'll and a from our toggle $X.X first will billion trying to

the at and own Q, disclose look our in quarter, in we'll lot we controlled did X,XXX by the numbers quarter. If more about grow in count the and you the

was year-over-year. -- it So, and

that's we're So, a pleasing and now. the we that staying ahead right to trend barely cost-off really continue think hope of

Jeff Kaminski

an growth count to quarters I'm as optimistic been a focus the community that absorption well And of new little of from growth yes, from just ASP incremental a now, bit. amount communities at that's you to what's top in, gross margin view line coming generally of adding positive for Despite both margin We've the about improvement mostly talking the growth, actually from as when very higher -- right the it acquired coming getting margin. the tremendous growing has been the in point growth. driving on recently land. several cost, about And there's we're that look improvement land of company the the comes

are that improvement in the margin in incremental providing we the of primary year-over-year X we've what communities So, margin new margin are the well those fact, saw of gross for the community in been around past but same number, we've as we grand out flat, and counts XXX is, seen we and reloading really quarter land opened so driver quarters. coming gross very that's been quarters, and pipeline the over improvement communities in the relatively first the couple very, new the about and, stayed performing last closed and,

we're So, it. about optimistic

plan and the continue think is underwriting to the kind of performance to And performance we're I open at level the invest. because very criteria, to the solid. our of division

Operator

Please question with Barclays. with with Matthew next Bouley your is proceed Our question.

Matthew Bouley

go the I back to gross margins. just wanted to

in the the ramp second it And you're maybe a the have than came the is fourth we guide half a even decline end quarter, on year-on-year in what expected, slower to you second for top at guiding first quarter. would in the year like So, quarter. implying the seems full potentially the guide of based

guide? in question So, year is, just are inflation? Or you full Is the embedding else that it driving cost conservatism some is around what that?

Jeff Kaminski

Right.

high conservatism the margin, would range, end looking XXX the I year. still which good would we forecast. We're the gross a not the be of we're undue really basis in improvement at result say for all, think of points no, embedding in of First any really

first last the did I these to margin think in in of it. weak and without look to abandonments little quarter, mean, in margin, first we adjusted it you'll a after pretty it. had grew a and call at have I are dissect numbers terms year quarter or one, XX.X% XX.X%. we only a impairments number gross numbers bit And the the

was comp. So, a of it bit of just, honestly, part just little a an easier

start quarter One though of great with feel good the good we're reasons a I to the a really that and off in start great XXXX. we about quarters, is years believe really usually first first

first So, weak The will is in the by quarter a well, result no, declines less math, in but we we're -- than just that a slightly will, XXXX, probably quarterly be what anticipating margin. pretty it in gross saw comp. not rent of year-over-year quarter, of most first easy very a just

Matthew Bouley

it. got Okay,

inflation communities acceleration expecting to guess, SG&A Thank the back just, by going labor So year, you're in cost California in should I be California? I in could versus And in ramp differences versus that in this just California? comment in just material Second other structure on question, any communities guess, you. markets. affected that California you notable how

Jeff Kaminski

Okay.

I it force. market-to-market, on very commodity-by-commodity, labor really is side, think specific force-by-labor the inflation

California. in really that So, I all anything don't Do think--? you different think that's there's

Jeffrey Mezger

a and home. are then Labor than lower of much percent at materials cost

Jeff Kaminski

the thing outside California on fixed leverage it's less ASPs. say that, I your or more as of same. inflation because you high in the is goes, only stronger of But far think I'd The as get cost base

your So, high to Coast ASPs does costs of in towards certainly, state. line just the because opportunity an in even top West any revenues base shift the against your more revenue lever region provide the fixed

point of that helpful that a So, is on view from go-forward basis.

Operator

Please next with with Jade is Our KBW. question proceed your question. Rahmani with

Jade Rahmani

existing benefit could your homes? set? any new at resale homes your does are if tight also you therefore, market? solely as Did types the Or products potentially looking look much. pace they from focus give sales And they very they wondering Thanks product their buyers, of color I on at. on was

Jeffrey Mezger

People not if it area, of from a certain home. tight they'll Jade, there's resale. a a definitely to choice, in benefits home buy new and to resale migrate want lot a

XX-year looked efficiency there's warranty, New the lot are there's a so in last there, higher homes tradeoff new. We've product, it's but new buyers a The of at also and were the also resales and looking our like that energy priced do I at time the typically benefits other homebuilders. business our we compete about view in with than data, the with XX% we of resale. always taken more better

new home sales you If and XXX,XXX million resales, there's it, year so X.X competitor? think who's about XXX,XXX there's your a or real

Jade Rahmani

ask turning that And developers selling to developers? or is this efficiency, with by initiative opportunity single-family or accelerate non-core to rental JV-ing potentially an land assets perhaps there

Jeffrey Mezger

value the our away want with we're it's that going we're Jade, things a more business we of we Jeff than we've optimize community the end And it we've just count managing just to you're years. opportunities, to from or stayed you look smaller going percent our [Indiscernible] own value think structures, for ever others. to to on a we the and our time ourselves looked profit. it's we And our if manage and we'll because much -- held off those at can for any the development, a sell better And portfolio. shared better up somebody's than create type And book it, certain can concluding creating sheet, were been at business. of as JVs the balance

Jeff Kaminski

continue held we in of implement mean, efficiency, strategy said, to inventory obviously, the we assets, inactive focus which the core pace, portion turnover and define of Yes, that. and the inventory asset like But Right. I have strategy is inactive Jeff small inventory our we generally, absorption terms do business sale. on, on for we'll and our a

Operator

question your is America with with with Merrill Bank next Please question, of proceed Our Lynch. John Lovallo

John Lovallo

you for my taking Hey guys. question. Thank

about do you Do the view XX% to the Or of cost, realizing general that change in up, three you first the the prices year? do as other lumbar the one, call nature? of just see here? of kind of to first XX% words, seasonal we'll year. it's being year-over-year months tariffs, of by think things up that pullback variances, that you here, In in kind more it, normal half this The structural fires, think the regional maybe driven there's curious in and a second Canadian

Jeff Kaminski

Yes, down. don't to does to, it's up and I tough cycles, tend But than call. a have ball else's. better go in lumber crystal anyone any

knocked to initiatives it. and strategic for [ph] We're Obviously, offset a commodities, off us point. business, that, both and but savings the the Up watchful go through point, it's and other of last or through year our the with been it our we on see run with cost it the that Canadians how to off improvement path we've at latest -- I tariffs initiatives concern I lumber pricing. very cost or almost to it as the as our as But prices travel well hasn't our BAV think think, at year. we'll pleased objectives this us ability has now, some moderate.

Jeffrey Mezger

our and starts visibility backlog and in do starts lumber model well look going we to our can can you pricing the city, locking our there's because take forward. size if pretty of John, at business every how we

comes So, what is our on it's is, And if we I the down peaks period. history, only pricing the five-month look today can getting know And and the offer pricing in the buys. lumber demand the for spring better in fall. typically you helpful lumber at other in the thing

track levels. their They're they to demand the activity optimize products. trying So, and

time lumber up October, the And hit run will this in peak. troughs will typically, and year. So, it and of the for year, September

and and our to fires backlog. but tariffs best to we manage prices demand things, international the of do touched and it tracking or just other all and some sales the the can on influences, we those and You've

John Lovallo

And just maybe operating helpful, for. on margin, bit a the financial That's then quickly lower Okay. looking services little than were guys. we

Some of seeing competitive refied think, up about to that bit the some more a to just has on Are big have dried you try well bit a talked the just maintain of bit. competitors, a that little of perhaps and your little pricing, being more some being business? aggressive now as I that banks market

Jeffrey Mezger

rate John, to a call, we're the going but just really still where getting now KBHS, just our, getting we Stearns. We're we're what you capture JV in with our progress, with start pleased business. on is mortgage because competitive I share the that tracking companies market those things feel go refis have will and impact it an can your market chase do the if can away.

be rate that Internally, come service if mortgage capture we goal the first the Our and products we was quarter can, to it in combination XX%. it'll of offered and the XX% that have out to are the of levels around get company. a a

Operator

question. proceed your with is final with Susan Maklari with Please Our Suisse. Credit question

Susan Maklari

Thank about California. wanted bit that do you. in the expect growth talk to a I just you count community

we development headwinds through some any growth up in labor sometimes the terms that as can things there? there Is Is headwinds that underlying out Given the come anything some move there could of and year? of slow that and that there. down of you of the see the sort potentially

Jeff Kaminski

the more In XX would anything positive for quarter, have business than be probably that of had think a we closeouts. more openings, for be planned only XX I the the we openings. headwind would Really,

a will And year. job the pull have our confident getting something openings a at on everything somewhat scheduled once We're nice and quarter a we've the that's ability things that a openings, time, more so the to forward. doing that continue things weeks little pretty to stable can else, in the almost able in We far. pretty always we're out delay be it's here push really or of rains winter varied side. but on but we'll in California. been with But winter we go times, next through something been couple -- on a while bit And throughout go into as open

So, through to we're the year. confident go that the in pretty ability grow as we

Susan Maklari

your the and acquire you're that you're highlighted and you kind you kind to ability realize of and think Thank Can Okay. of Southeast markets. that about also I you. land just Orlando one is then And in have the those lots growth? fact talk there of to that maybe how to that position the mentioned grow thinking looking you you

Jeffrey Mezger

shared that it actively an our the fix It's it's and years, cities all a few and business story. had the fix to for out land been in within grows that seems we're interesting And growing fairly we and it's start It market again. while. that. we've specific now could not we to one region. region, rational. a and those well executing We're Yes, We've directions. our a Southeast took base our in before count of And of community done tight growing investing Orlando, asset

But ring the excited to opportunity The tighter C be there. ring. the desirable pushing So, are B the than for envelope on about we're areas the more investing, lots nobody we're price seems or and there.

Operator

today's gentlemen, and for you participation. Ladies Thank concludes your this teleconference.

You may now your lines. disconnect

KB Home (KBH) 22 Mar 182018 Q1 Earnings call transcript