KB Home (NYSE: KBH) stock fell over 3.6% on September 26th, 2018 (as of 1:34 PM GMT-4; Source: google finance) after the company posted mixed results for the third quarter 2018. KB Home has earned $87.5 million in the third quarter, compared with $50.2 million in the year-ago period. The company produced significant year-over-year gross profit margin improvement through the consistent focus and optimizing the assets, a continued rotation in the higher margin communities, and an increasing benefit from lower interest amortization. The company’s gross margin this quarter was also helped by a geographic mix shift in deliveries toward higher margin communities. The Company had total liquidity of $816.7 million, including cash and cash equivalents of $354.4 million. Inventories increased by 13% to $3.69 billion.
KBH in the third quarter of FY 18 has reported the adjusted earnings per share of 87 cents, beating the analysts’ estimates for the adjusted earnings per share of 77 cents. The company had reported the adjusted revenue growth of 7 percent to $1.2 billion in the third quarter of FY 18, missing the analysts’ estimates for revenue of $1.3 billion. Net orders for the third quarter increased 3% to 2,685. Net order value declined 5% to $1.02 billion. Company-wide, net orders per community averaged 4.1 per month, up 11% from 3.7 per month, reflecting increases in each of the Company’s four regions. The number of homes in ending backlog increased slightly to 5,484, while ending backlog value decreased 4% to $2.04 billion. The decrease in backlog value was mainly due to a shift in geographic mix from the Company’s West Coast region, where the average community count for the quarter was 16% lower.
In the third quarter, KBH has expanded the gross margin by 180 basis points to 18.7% excluding inventory related charges. KBH also continued to effectively manage overhead cost, while increasing scale which resulted in a record low third quarter SG&A ratio. Taken together, the operating income margin was up 190 basis points to 9.3%. The company has generated approximately $38,000 per delivery in the third quarter of 2018, an improvement of more than 25% as compared to the prior year quarter.
Meanwhile, notes payable decreased by $261.7 million to $2.06 billion, largely due to the Company’s repayment of the entire $300.0 million in aggregate principal amount of its 7 1/4% Senior Notes upon their June 15, 2018 maturity using internally generated cash.