KB Home's Loss Narrows as Deliveries, Prices Jump

KB Home (KBH) sharply narrowed its fiscal second-quarter loss, as the home builder reported strong revenue growth amid an increase in the number of homes delivered and higher average selling prices across all of its homebuilding regions.

The results from Los Angeles-based KB Home, one of the nation's largest home builders, come as housing stocks have taken a beating from investors anxious about rising interest rates.

In a Monday note, Barclays said "when interest rate concerns intensify sharply, no amount of fundamental strength is sufficient to insulate the homebuilding stocks." The firm, however, said KB Home is among builders "with fresh and long supplies of land in the best markets that have an above-average chance for outperformance."

On Thursday, Chief Executive Jeffrey Mezger said KB Home is well positioned in some of the strongest housing markets across the country. "With the limited supply of homes available for sale and robust demand in many of our served markets, we have deliberately emphasized price and value creation over sales pace to effectively optimize our land assets," he said.

For the quarter ended May 31, KB Home reported a loss of $3 million, or four cents a share, versus a year-ago loss of $24.1 million, or 31 cents a share. The latest quarter's results included a $15.9 million charge associated with water intrusion-related repairs at some of the company's communities in central and southwest Florida. Excluding the water intrusion-related charge, KB Home logged a profit of $12.9 million.

Revenue rose 73% to $524.4 million.

Analysts expected a per-share loss of six cents on $451 million in revenue, according a poll conducted by Thomson Reuters.

KB Home reported a 39% increase in home deliveries to 1,797 homes. The builder logged a 25% increase in the average selling price to $290,400 a home, marking the highest second-quarter average selling price since 2006.

Average selling prices increased 15% in each of the company's West Coast and Central homebuilding regions, 26% in the Southwest homebuilding region and 16% in the Southeast homebuilding region.

The cancellation rate as a percentage of gross orders rose to 27% from 26% a year earlier.

The home building gross margin narrowed to 15.1% from 15.8%.

The number of homes in the company's backlog--an indication of future business--rose 6% to 3,128.

Net orders rose 6% to 2,162 homes, reflecting growth in KB Home's Central and Southeast homebuilding regions of 8% and 31% respectively, partly offset by lower net orders in its West Coast and Southwest homebuilding regions.

Shares edged up by a penny to $19.90 in recent premarket trading. The stock has more than doubled in the past 12 months.

Write to Saabira Chaudhuri at [e-mail]

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