Number-five U.S. homebuilder KB Home has suffered an 84% plunge in fiscal Q1 net income to $27.5 million ($0.34/share) from $173.3 million ($2.01) a year ago. Revenue fell 19% to $1.78 billion. The results came in ahead of analyst expectations of about $0.25 EPS on revenue of $1.67 billion. New-home orders dropped 12%, with the Southwest and Central regions particularly hard-hit. CEO Jeffrey Mezger says he does not expect the housing slump to reverse this year, in part because the continued rise in defaults among subprime borrowers will likely increase the supply of homes on the market, maintaining pressure on prices. The tightening of credit requirements is also "exacerbat[ing] the already-difficult conditions in the home-building industry." Mezger forecasts 2007 revenue and profit to underperform the results of 2006. The report did show several bright spots: the company's cancellation rate fell to 31% from 48% in fiscal Q4, and the backlog of 18,406 houses worth $4.8 billion was down 31% and 34%, respectively. Shares dropped 1.1% to $47.25 Thursday, and another 1.1% to $46.75 in after-hours trading.
Sources: Bloomberg, Reuters, MarketWatch, Wall Street Journal
Commentary: KB Home Reports Quarterly Loss, Warns of Challenges • A Play on Subprime Woes and Homebuilders: TOL vs. KBH - Barron's • KB Homes: What Happened To Bonuses Linked To Creating Stockholder Value?
Stocks/ETFs to watch: KB Home (KBH). Competitors: DR Horton Inc. (DHI), Lennar Corp. (LEN), Pulte Homes Inc. (PHM). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB)
Conference call transcripts: F1Q07 (Qtr End 2/28/07)
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