Strong Housing Market Helps KB Home’s Profit
KB Home, the nation’s largest home builder, announced better-than-expected second-quarter earnings Tuesday, as the home-building industry continues to enjoy healthy profits amid the nation’s economic slowdown.
The Westwood-based company’s 43% gain in net income reflects a pent-up demand for entry-level housing, KB Home’s primary market niche. Economists also attribute the continuing home-building boom to historically low interest rates, high consumer confidence and robust job growth in Southern California.
“Profits are good for builders because prices here are relatively affordable compared to the Bay Area and other cities,” said UCLA senior economist Tom Lieser. “Anything being built in the ‘affordable’ category is going fast.”
New-home construction of single-family residences in six Southern California counties is up 13% over the same period last year, according to Ben Bartolotto of the Burbank-based Construction Industry Research Board.
The greatest activity was reported in the Inland Empire and Los Angeles County, with unexpectedly strong housing starts also reported in Ventura County.
“We never achieved the [construction] levels we projected during the recovery,” Bartolotto said. “I think that part of what we’re seeing is a catch-up effect.”
California produced about 140,000 housing units a year for the last 10 years, or about 1.4 million units, said Bruce Karatz, KB Home chief executive and chairman. He projects a demand for about 250,000 housing units a year over the next decade, creating a gap of about 1 million homes during that time.
“We’ve been unable to produce the amount of housing needed,” Karatz said. “This creates a nice little cushion for us, even in a slowing economy.” He said the company is raising earnings estimates for 2001 to between $5.10 and $5.20 per share.
KB Home builds in California, Arizona, Nevada, New Mexico, Colorado and Texas, the fastest-growing states in the nation, according to the Census Bureau. The company sold 5,821 homes, up 12% from a year earlier. The average sale price rose 7% to $178,100.
“KB has made its mark by being able to provide entry-level housing for California’s working families,” said David Cordero, a spokesman for the Building Industry Assn. of Southern California. “I think right now that’s where the demand is highest. People need affordable housing near their [jobs].”
KB Home’s net income for the three months ended May 31 rose to $39.5 million, or $1.07 per share, from $27.7 million, or 68 cents a share, a year ago, the company reported. Revenue rose 18% to $1.07 billion. It was expected to earn 96 cents, according to a survey of analysts by First Call/Thomson Financial.
The builder said its backlog of homes that are ordered but not delivered was up 16.6% from a year ago to a record $2.44 billion at the end of the second quarter.
Shares of KB closed at $29.40, up 65 cents on the New York Stock Exchange.
They are up 56% in the last year, compared with a 91% increase in the Standard & Poor’s SuperCap Home Building Index of 15 U.S. home builders, including KB Home.
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Off Peak
Despite strong earnings growth, KB Home’s share price has pulled back from its peak levels reached in December.
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KB Home shares, monthly closes and latest on the NYSE
Tuesday: $29.40, up 65 cents
Source: Bloomberg News
