KB Home's Sales Soar, but Profit Hurt by Land Costs, Impairments

KB Home said profit fell in its latest quarter as higher land costs and an impairment charge offset surging revenue.

Like its larger rival Lennar Corp., the Los Angeles-based builder reported double-digit percentage gains in orders and deliveries, although those increases fell short of analysts' expectations. New orders, up 19%, increased across all geographic regions. Deliveries jumped 24%, bolstered by strength in the West and southwest.

KB's average selling price, meanwhile, increased 9% to $357,200. Higher sales prices and stronger delivery volume pushed revenue up 43% from a year earlier.

However, a spike in land costs, to $40.3 million from $3.4 million last year, helped offset the revenue increase and led to a steeper-than-expected drop in the builder's gross profit margin. Margin fell to 16.2% from 18.8%; RBC Capital Markets analyst Robert Wetenhall had projected a margin decline to 16.6%. Earlier this week, Lennar similarly pointed to more expensive land for its margin contraction.

In addition to higher land costs, $3.5 million in charges stemming from housing inventory impairments and contract abandonments bit into the bottom line.

Overall, the company reported a profit of $23.3 million, or 23 cents a share, down from $28.4 million, or 28 cents, a year earlier. Revenue increased 43% to $843.2 million.

Analysts projected 22 cents in per-share earnings on $818.5 million in sales, according to Thomson Reuters.

Shares in the company, down about 14% this year and lagging its peers, slipped 0.7% premarket.

Write to Lisa Beilfuss at [e-mail]

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September 24, 2015 09:45 ET (13:45 GMT)

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