KB Homes Has Better Than Expected Third Quarter Earnings

Published by: Geno on 28th Sep 2010 | View all blogs by Geno
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KB Homes Has Better Than Expected Third Quarter Earnings


The nation's fifth-largest home builder, KB Homes, posted a lower-than-expected third quarter loss on Friday thanks to a series of cost-cutting moves, and its shares responded by gaining just over 3 percent (Today the stock dropped 3%). The company reported in a conference call its third quarter loss came in at $1.4 million, or about 2 cents per share, well below its loss of $66 million, or 87 cents per share, for the third quarter of 2009.

Analysts had been forecasting a loss for the company of as much as 15 cents per share, according to a recent survey conducted by Reuters. The company recently cut costs to a combined total of $78.5 million combined for selling, general, and administrative expenses. Analysts say that the company's stock should rise because they are doing an admirable job controlling their own destiny, especially with so many factors beyond their control.

Demand for new housing has been soft since the expiration of federal tax credits on April 30th. KB's orders fell by almost 40 percent, to 1,315, 25 percent lower than analysts had forecast. In a conference call with analysts, the company lowered fourth quarter expectations to 2,200 homes, which would bring their yearly total to just 7,628 units. The company had forecast a yearly total in the range of 8,000 to 8,500 in a second quarter conference call.

Orders are commonly used as an indicator of future sales for builders, as they do not see revenue until closing. KB Homes is known for it's “build-to-order” principle, meaning they do not start building a new home until a buyer for the home is in place. A company official said they would begin building homes without buyers in place with the hope of attracting more buyers in the future as sales continue to be sluggish, affected by continued high unemployment and low consumer confidence.

A Commerce Department report issued Friday showed new home sales stagnant in August, unchanged from July at a seasonally adjusted rate of 288,000 units. Analysts believe the housing market is hovering around a weak bottom due to a number of factors specific to housing, and these factors could continue to limit housing growth for the next three to five years.

KB Homes revenue rose nearly ten percent to just over $500 million, ahead of economists' consensus forecast of $482 million. Closings were up thanks to orders for homes placed before the tax credits' expiration, which led to an increase of 4 percent on the number of homes delivered by the company. The company's shares climbed 3.3 percent  in early trading to $12.10 per share.


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