KB Home: Earnings Preview

Mar.21.12 | About: KB Home (KBH)

Housing company KB Home (NYSE:KBH) is all set to unveil its first quarter 2012 results on March 23, 2012, before the start of trading. The Zacks Consensus Estimate for the first quarter is a loss of 23 cents (year-over-year improvement of 113%) on revenues of $324 million (year-over-year increase of 64.5%).

Fourth Quarter Recap

KB Home reported earnings of 18 cents per share in the fourth quarter of fiscal 2011 as opposed to 23 cents per share in the year-ago quarter.

However, excluding inventory impairments and land option contract abandonment and an income tax benefit, adjusted earnings were 18 cents per share, much higher than the Zacks Consensus Estimate of a profit of 3 cents per share. Total revenue increased 6% year over year to $479.9 million, mainly driven by a 6% rise in housing revenues to $475.7 million. The improvement in housing revenues reflected 4% growth in the number of homes delivered reaching 1,995 homes combined with a 3% rise in average selling price to $238,400.

(Read our full coverage on this earnings report: Home Sales Drive KB Home's 4Q ).

Agreement of Estimate Revisions

Over the past 7 days, all the 15 analysts covering KB Home have left their earnings estimates for the first quarter of 2012 unchanged. However, over the last 30 days 1 analyst has revised the earnings estimate for the first quarter of 2012. The revision has been in the downward direction. Earnings estimates for 2012 have also been slashed by just one of the 17 analysts covering the stock over the last 30 days with no upward movement.

KB Home faces a fragile housing market. The current downturn in the housing industry combined with an overall weak economic condition, high unemployment rates, reduced credit availability, rising interest rates and lack of incentives like tax-credit for homebuyers is weighing down on homebuilders. Other than that, the housing market has become extremely aggressive and KB Home’s new homes are facing tough competition from housing alternatives, including resale homes, foreclosed homes, short sale homes and rental housing. Increased availability of housing alternatives has been keeping the company’s earnings under pressure which partly explains the downward revisions by analysts.

Magnitude of Estimate Revisions

Given the lack of revisions, the loss estimate for the first quarter of fiscal 2012 has remained static over the last 7 days at 23 cents. However, the consensus loss estimate has widened by a penny from 22 cents to 23 cents over the last 30 days.

Surprise History

KB Home has surpassed earnings estimates in two of the last four quarters. The company, while missing estimates in the first two quarters of 2011, recorded a maximum positive surprise of 500% in the final quarter of 2011. On average, the earnings surprise was a negative 26.61%.

Our Recommendation

We currently have an Underperform recommendation on KB Home. The stock carries a Zacks #5 Rank (a short-term ‘Strong Sell’ rating).

KB HOME (KBH): Free Stock Analysis Report