KB Home shares fall on disappointing order growth
NEW YORK (AP) — Shares of KB Home fell Friday after the homebuilder reported better-than-expected quarterly results, but its growth in orders for new homes disappointed some investors. Some analysts were also not impressed by the company's margins and deliveries.
THE SPARK: The Los Angeles-based company's fiscal fourth-quarter profit of 10 cents per share, down 45 percent from a year ago. But that beat Wall Street predictions of 6 cents per share. Revenue jumped 21 percent to $578.2 million, above analysts' consensus prediction of $562.9 million, according to FactSet.
But new home orders rose just 4 percent to 1,557.
THE BIG PICTURE: Overall the housing sector appears to be picking up, thanks in part to low interest rates and a thinning of available homes that had driven down prices sharply for years.
The National Association of Realtors said Thursday that U.S. sales of previously occupied homes jumped to the highest level in three years last month, bolstered by steady job gains and record-low mortgage rates. Sales rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November, up from 4.76 million in October.
Previously occupied home sales are on track for their best year in five years. November's sales were the highest since November 2009, when an expiring federal tax credit spurred sales. Excluding that month, last month's sales were the highest since July 2007.
Home sales are up 14.5 percent from a year ago, though they remain below the roughly 5.5 million consistent with a healthy market.
THE ANALYSIS: Williams Financial Group analyst David Williams cut his rating on KB Home shares to "Sell" from "Hold," saying orders, margins, community count and deliveries were all disappointing. He said that while the company has posted one of the sharpest increases in the average sale price of its homes, it hasn't significantly affected its profitability.
"Although some of the pricing movement can be attributed to geographic mix, we would have expected at least a moderate level of organic price increases to flow through to gross margin," Williams wrote in a note to investors.
Stifel Nicolaus analyst Michael Widner backed his "Hold" rating. He said that while KB Home's financial results were roughly in line with his expectations, order growth was "weak."
Widner added that the company's stretched finances are keeping it from getting as big of a boost as others from the housing recovery, which could result in it losing a modest amount of market share.
THE SHARES: Down 66 cents, or 4.2 percent, to $14.94 in afternoon trading. Over the past year, the company's shares have traded between $6.17 and $17.30.
Since the beginning of this year, the stock has more than doubled in value.