Home Builder Kaufman Says Profit Up 85% in 3rd Quarter

Kaufman & Broad Home Corp., the largest home builder in the western U.S., said Tuesday that its fiscal third-quarter earnings rose a larger-than-expected 85%, helped by improved profit margins from its home-building operations.

The Los Angeles company’s net income for the three months ended Aug. 31 rose to $28.1 million, or 68 cents a diluted share, from $15.2 million, or 38 cents, in the year-earlier period. That beat the 60-cent average forecast of analysts polled by First Call Corp.

“We expect that favorable year-over-year unit delivery and margin comparisons will continue in the fourth quarter of 1998,” said Bruce Karatz, the company’s chairman and chief executive.

But the company’s shares sank $1.50 to $20.50 on the New York Stock Exchange, after hitting a new 52-week low of $18.63. The stock was as high as $35 in July.

Analysts and company officials blamed the stock’s decline on an incorrect report saying the company was lowering its fourth-quarter earnings forecast.

“The prospects for continued good earnings performance are very strong,” Chief Financial Officer Mike Henn said. He said the company will probably meet analysts’ fourth-quarter earnings estimates of 84 cents a share.

“My expectation is that they will beat earnings expectations in the fourth quarter,” said Stephen Kim, an analyst at Bankers Trust. “Their backlog is strong.”

Even though the industry is enjoying one of its best periods ever, stocks of some home builders have fallen in recent weeks on concern that an economic slowdown, triggered by shrinking markets abroad, will cause the U.S. housing market to cool, eating into profits.

Housing starts in July rose to their highest level in 11 years but fell about 5.7% in August amid growing concern about a slowing economy. Housing starts are still 17% above the August 1997 rate.

“It has only to do with people’s concerns with the home building environment, not with what is actually occurring,” Kim said.

Kaufman & Broad, the largest builder of homes west of the Mississippi River, said revenue rose to $659 million from $469 million. The company operates in 20 markets, including California, Nevada, Arizona, Texas and Utah.

Companywide net orders for the third quarter rose 17.3% to 3,883 and 43.4% in the first three weeks of September. That partly offset the poor third-quarter performance for the company in its California market, where net orders fell 25%.