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KB Home Q1 net orders fall on higher cancellations

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03/23/2012 | 04:22pm CET

KB Home (>> KB Home) posted a surprise fall in net orders as cancellations rose in the first quarter, a sharp contrast to the recent upbeat forecasts by rivals, sending its shares down 14 percent.

KB Home (>> KB Home) posted a surprise fall in net orders as cancellations rose in the first quarter, a sharp contrast to the recent upbeat forecasts by rivals, sending its shares down 14 percent.

Homebuilders such as D. R. Horton Inc (>> D.R. Horton, Inc.), Pulte Group Inc (>> PulteGroup, Inc.) and Lennar Corp (>> Lennar Corporation) have forecast an improving housing market.

Also, data released on Tuesday showed permits to build homes rose to a near 3-1/2 year high in February. However, new U.S. single-family home sales fell in February, but reported a jump in prices to their highest level in eight months.

New home sales account for about 7 percent of the overall housing market and face stiff competition from used home segment despite low levels of stock.

KB Home -- which focuses on entry level, move-up buyers and active adult home buyers -- said the pace of the recovery was uneven, with certain markets showing greater strength.

The fifth-largest U.S. homebuilder, which had posted strong order growth for the last two quarters, said orders fell 8 percent to 1,197 homes in the quarter. Orders declined in three of its four regions.

Orders are a key indicator for builders who do not book revenue until they close on a house.

The housing market is healing from a collapse that triggered the 2007-09 recession, but a glut of unsold properties and high unemployment have hindered the recovery.

Net orders at the higher-priced West Coast market fell 28 percent to 289 homes. Average selling price in this market was up by more than 6 percent. The Southwest market, where prices rose by about 26 percent, saw net orders decline 30 percent.

KB Home blamed a rise in cancellation rate -- up 36 percent from 29 percent last year -- for the fall in net orders.

The homebuilder said housing gross margin for the quarter fell to 9.7 percent from 12.6 percent last year.

UBS analyst David Goldberg said although recent anecdotal evidence suggested underperformance in the entry-level segment, the magnitude of the weakness experienced by KB Home is beyond what this would have suggested.

He added that the results were likely reflective of a company specific issue as opposed to a broader trend.

First-quarter net loss narrowed to 59 cents per share, from $1.49 per share a year ago. Revenue rose 29 percent to $254.6 million.

Analysts were expecting a loss of 24 cents per share on revenue of $337.7 million, according to Thomson Reuters I/B/E/S.

Shares of the company were down 8 percent at $10.36 on Friday morning on the New York Stock Exchange, making them the second-biggest percentage loser on the exchange. The shares have gained more than two-third in value in the past 3 months on hopes of a recovering housing market.

KB Home's disappointing performance also pushed shares of its peers down. Shares of rival Toll Brothers (>> Toll Brothers, Inc.) were down 2 percent, while shares of biggest homebuilder D.R. Horton were down 1 percent.

The S&P homebuilding sub-industry index <.GSPHOME>, which has doubled in the last six months, was trading down 2 percent, while the broader market <.SPX> was up slightly. (Reporting by Megha Mandavia in Bangalore; Editing by Sriraj Kalluvila)

By Megha Mandavia

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Financials ($)
Sales 2018 16 140 M
EBIT 2018 1 825 M
Net income 2018 1 297 M
Debt 2018 1 498 M
Yield 2018 0,93%
P/E ratio 2018 15,41
P/E ratio 2019 13,16
EV / Sales 2018 1,31x
EV / Sales 2019 1,16x
Capitalization 19 590 M
Duration : Period :
D.R. Horton Technical Analysis Chart | DHI | US23331A1097 | 4-Traders
Technical analysis trends D.R. HORTON
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 23
Average target price 53,9 $
Spread / Average Target 3,4%
EPS Revisions
David V. Auld President & Chief Executive Officer
Donald Ray Horton Chairman
Michael J. Murray Chief Operating Officer & Executive Vice President
Bill W. Wheat Chief Financial Officer & Executive Vice President
Michael R. Buchanan Independent Outside Director
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