KB Homes Fails to Live Up to Low Expectations

Jun.27.10 | About: KB Home (KBH)
By David Gibbs

Earnings: Q2 loss of $0.40/share vs. estimates of a loss of $0.30/share and a loss of $1.03/share for Q2 last year. [see call transcript]

Revenue: Down 2.7% YOY to $374.1 million vs. estimates of $373 million.

“We like this business model and generally its execution during four of the last six quarters; unfortunately, this quarter’s results should send a big wake-up call,” remarked an analyst who covers the stock.

The “discipline inherent in [KBH's] build-to-order model will drive long-term benefits as conditions normalize,” remarked another.

Comment: Shares of KB Home (NYSE: KBH) got knocked around to the tune of a 9% loss Friday following its dismal Q2 earnings report. After Wednesday’s Commerce Dept. report revealed that new-home sales had plunged to all-time lows, the Street knew that this wouldn’t be a pretty report, but KBH still managed to disappoint. New orders fell 23% YOY vs. expectations of a 19% gain, gross margins fell to 17.7% from 19% and the average selling price of a new home fell 3.8%.

KBH’s particularly bad results indicate that it, “may have a more difficult time [reconstructing] profitability than will some peers,” according to an analyst. An under-performer in a weak sector, KBH may be in line for continued pain in the coming months.

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Disclosure: none.