KB Home Earnings Soar 35% in Quarter
Not long after the release of a dismal government report on housing starts, building giant KB Home sent a different signal Thursday, raising its earnings forecast for next year and reporting record fourth-quarter and year-end results for 2004.
Los Angeles-based KB also ended the fiscal year with the most houses in its pipeline in the company’s 47-year history.
KB raised its 2005 profit guidance to $14.50 a share, from $14.
“I was expecting good numbers and they came in better than I expected,” said A.G. Edwards & Sons analyst Gregory Gieber, who reiterated his “buy” rating on KB.
KB’s results were announced hours after the Commerce Department reported that housing starts took their steepest plunge in 11 years in November, falling 13% to a seasonally adjusted annual rate of 1.77 million. That was far below expectations of about 1.98 million and down from 2.04 million in October.
That news sank the stock of every major homebuilding company except KB. Its shares rose 9 cents to a record high of $105.59 in regular New York Stock Exchange trading. KB reported its results after the markets closed, and it shares rose as high as $107.65 in after-hours trading.
KB said its fiscal fourth-quarter profit jumped 35% to $186.7 million, or $4.42 a share, compared with $138.7 million, or $3.31, a year earlier. The results beat analysts’ consensus estimate of $4.13 as reported by Thomson First Call. Revenue rose 27% to $2.38 billion.
For all of fiscal 2004, KB’s profit rose 30% to $480.9 million, or $11.40 a share, compared with $370.8 million, or $8.80, a year earlier. Revenue climbed 21% to $7.05 billion. The per-share profit beat analysts’ estimate of $11.09 as well as the company’s previous forecast of $11 a share.
KB’s results came in what probably will be the second-best year in the industry’s history, with new-home sales reaching close to 1 million, down slightly from 2003’s record of 1.1 million.
Operating in most regions of the country, KB caters to first-time and so-called move-up buyers and has started to expand into luxury homes carrying prices of $1 million and more. KB’s average home price reached $229,200 in the quarter -- up 11% -- and $219,900 for the year, a 6.5% increase. The firm completed 10,285 homes in the quarter, up 16%, as fiscal-year completions rose 16%, to 31,646.
Net orders on homes it intends to build surged 28% to 8,516 during the quarter and 26% for the year to 36,278.
Meanwhile, the company’s backlog -- a key predictor of future sales and earnings -- was 20,280 units, up 38% from a year earlier.
The results put KB “in a position of power entering 2005,” Chief Financial Officer Dom Cecere said.
Two years ago, the firm embarked on a nationwide growth strategy. Today, it builds homes in about 36 markets and has a nationwide market share of 7%, considered sizable in the fragmented building industry. “That expansion is really paying off now,” Cecere said.
The Commerce Department report found that building permits -- considered a better sign of future construction activity than housing starts are -- dipped just 1.9% to 1.98 million.
That the permit activity was about in line with last year’s “indicates that builders haven’t tossed in the towel,” said economist Steven Wood of UC Berkeley.
In California this year, builders are on pace to apply for about 200,000 permits -- the most since 1989.
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Reuters was used in compiling this report.
