What happened
Homebuilder KB Home (KBH 0.92%) reported fourth-quarter earnings that handily beat the market's expectations. The company reported earnings per share of $0.84, significantly higher than the $0.77 that analysts had been expecting and more than double the $0.40 per share KB earned during the fourth quarter of 2016.
As of 11:15 a.m. EST on Thursday, shares were up by about 11% to a new 52-week high.
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So what
KB Home reported a strong fourth quarter all around. Revenue grew by 18% year over year, and the average selling price of one of the company's homes rose 8% to $416,500.
In addition, KB Home's expenses improved significantly, dropping 50 basis points to 8.7% of housing revenues. The combination of higher revenue and effective expense controls resulted in the company's gross profit margin on housing increasing by 160 basis points.
Furthermore, the company provided guidance on the impact of the 2018 tax changes. For 2017, KB Home's effective tax rate (combined federal and state) was 37.7%. While the company is expecting a $115 million one-time writedown in the first quarter due to the tax reform bill's impact on its deferred tax assets, KB Home expects its 2018 effective tax rate to fall to 27% -- a big reduction.
Now what
From an investor's perspective, perhaps the most important news is that the company's backlog grew by 9% and now sits at nearly $1.7 billion. KB Home currently has more than 4,400 homes in its backlog, which should keep the strong momentum going as 2018 unfolds.
