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Markets fall as investors weigh in on KB Home, HB Fuller results

by Brian Neeley
March 23, 2022
in Market
Markets fall as investors weigh in on KB Home, HB Fuller results

Wall Street finally lost its upward momentum after a huge jump over the past week and a half. Fears of a sharp hike in interest rates by the Federal Reserve and continued rise in oil prices weighed on the market sentiment. By End of Day, S&P 500 ( ^GSPC -1.23% ), Dow Jones Industrial Average (^DJI -1.29%), and Nasdaq Composite ( ^IXIC -1.32% ) All were down more than 1%.

index

daily percentage change

daily point change

doe

(1.29%)

(449)

s & P

(1.23%)

(55)

Nasdaq

(1.32%)

(186)

Data Source: Yahoo! Finance.

After the market closed, investors could see the financial consequences of some ties from some companies to very different parts of the economy. KB Home (KBH -4.66%) offered to see how the housing market is reacting to all the news on Wall Street, while HB FullerThe K (FUL -0.25%) Specialty Chemicals business showed how consumers and businesses are changing the way they spend. We’ll take a closer look at both the reports below.

Image Source: Getty Images.

KB Home lost ground

Shares of KB Home were down nearly 4% in late Wednesday trading. The homebuilder’s fiscal first-quarter results showed substantial growth, but investors were worried about what the future might bring, despite an optimistic outlook.

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KB Home’s first quarter numbers reflect favorable conditions for the housing market. Revenue came in at $1.40 billion, up 23% year over year. Almost all of those gains stemmed from higher average selling prices, which climbed 22% to $486,100. Home delivery volumes were close to unchanged at 2,868. Those higher prices were enough to cover rising material costs, as operating margin rose 2.2 percentage points to 12.2%. Earnings of $1.47 per share were up 44% from a year ago level.

Furthermore, KB Home sees the good times continuing. It provided full-year fiscal 2022 guidance for revenue of $7.2 billion to $7.6 billion, which would represent growth of 26% to 33% from fiscal 2021 levels. The average price should continue to climb between $490,000 and $500,000, along with solid margin figures. The backlog of $5.71 billion grew 55% year over year and indicated strong demand going forward.

Right now, a limited list of existing homes is supporting prices despite the rise in mortgage rates. However, if the Fed accelerates its rate hike schedule, it could lower the price of some marginal buyers and potentially start the turn of the real estate market. Despite the impressive numbers, it appears to be a cause for concern among investors.

fuller keeps growing

Investors had mixed opinions on HB Fuller’s first-quarter financial results. Initially, the stock climbed in after-hours trading shortly after the announcement, but remained unchanged as of 5 p.m. ET.

Fuller’s first quarter numbers saw solid growth. Sales climbed 18% on a 21% increase in organic revenue, and exemplary business execution and substantial gains in product volume helped prop up net income. Adjusted earnings came in at $0.80 per share, up 21% year over year.

Looking ahead, Fuller expects the recent acquisitions of Apollo and Fourney to help expand the presence of its construction adhesives business in the key European market. CEO Jim Owens sees strength in his organic business as a natural result of his multi-year strategic plan, and Fuller is succeeding in his efforts to deliver state-of-the-art adhesives products to meet the needs of all of our customers.

Best of all, Fuller expects to be able to pass on higher petrochemical supply costs to its customers, which will help it maintain margin strength. With organic revenue growth of 15% to 20% forecast to boost full-year guidance and new earnings estimates of $4.10 to $4.35 per share, Fuller looks like it’s moving forward at full speed.

This article represents the opinion of the author, who may disagree with the Motley Fool Premium Advisory Service’s “official” recommendation status. We are Motivate! Questioning an investment thesis – even our own – helps us all to think critically about investments and make decisions that help us become smart, happy, and wealthy.

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