Saturday, January 9, 2010

KB Home (NYSE: KBH): Q4 Earnings Preview 2009

KB Home (NYSE: KBH) is scheduled to release financial results for fourth quarter 2009 before the opening bell on Tuesday, January 12, 2010.. Analysts, on average, expect the company to report net loss of 49 cents a share on revenue of $579.66 million. In the year ago quarter, the company reported a loss of $3.96 per share on revenue of $919.04 million.

KB Home constructs and sells homes in the United States. The company builds various types of homes, including attached and detached single-family homes, townhomes, and condominiums, designed primarily for first-time, first move-up, and adult buyers. It also offers mortgage services in a joint venture with Countrywide KB Home Loans. The company is primarily going after the first time home buyer, which is one area of the market that appears to be improving.

Though there has been a marked improvement in housing market, turning a profit still remains a challenge for recession-hit housing sector. Late in September, the homebuilder reported a narrower loss for the third quarter, helped by lower expenses and cancellation rate as well as an increase in net orders.Net loss for the quarter narrowed to $66.05 million or $0.87 per share from $144.75 million or $1.87 per share in the prior year. Revenues for the quarter declined to $458.45 million from $681.61 million in the previous year, as housing revenues dropped due to a 20% decrease in homes delivered and a 15% decline in the average selling price, compared to the previous year. Excluding inventory valuation charges, our housing gross margin increased by 500 basis points to 14.6% in the quarter from 9.6% a year ago.Analysts,on average, expected the company to report a loss of $0.58 per share on revenue of $458.90 million.

Net orders increased 62% to 2,158 from 1,329 in the third quarter of 2008, with each of the company's geographic regions experiencing year-over-year net order growth. The company attributed the growth in net order to the new product line, The Open Series, and a lower cancellation rate. The company delivered 2,240 homes in the third quarter, down 20% from 2,788 homes delivered in the year-earlier quarter. Average sales price declined to $202,800 from $239,700 in the prior year. Backlog homes at the end of August 31, 2009 was 3,722 with a backlog value of $734,094, compared to 4,774, having a backlog value of $1.13 million at the end of August 31, 2008. Cancellation rate as a percentage of gross orders improved to 27% from 51% in the third quarter of 2008.

Looking ahead, the company said the market ''remains in a transition where it will likely be some time before we see meaningful improvement in the economic conditions that are essential to our industry's future growth.''

Several signs of a housing industry bottom have already become apparent. Recession has dealt a severe blow to the home-building sector and new construction is far below the rate needed for normal population growth and replacement of older homes. Job losses appear to be moderating, consumer spending is up, if only slightly, and manufacturing and other industrial data have provided encouragement. The massive drop in prices, federal incentives for buyers and relatively low borrowing are making housing more affordable.

Early in November, the government extended the $8,000 first-time home-buyer tax credit to homes under contract by April 30. Aside from extending the home-buyer tax credit, the new legislation signed into law last week provides tax breaks for home builders, which will result in hundreds of millions of dollars in savings and boost cash levels of homebuilders. Additionally, the legislation extends the tax loss carryback period to five years from two years for corporate losses booked in 2008 or 2009, which should help strengthen builders' balance sheets.

The homebuilder has aggressively slashed costs in response to worst recession in decades. Costs and expenses declined to $498.45 million in third quarter from $786.94 million in the previous year. Selling, general and administrative expenses totaled $83.9 million in the third quarter of 2009, down from $133.2 million in the year-earlier period.

Among other developments, KB Home declared cash dividend Of $0.0625 per Share in the fourth quarter. In terms of stock performance, shares of the company have gained 8 percent over the past year.

Full Disclosure: None.

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