KB Home to ramp up growth amid strong housing recovery

Thu Mar 21, 2013 2:16pm EDT

Newly finished development of homes for sale, built by home builder KB Homes, are pictured in Carlsbad, California January 4, 2011. REUTERS/Mike Blake

Newly finished development of homes for sale, built by home builder KB Homes, are pictured in Carlsbad, California January 4, 2011.

Credit: Reuters/Mike Blake

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(Reuters) - KB Home (KBH.N), the fifth-largest U.S. homebuilder, plans to invest more than $1 billion this year on land acquisition and development as it steps up growth initiatives amid a strong U.S. housing recovery.

The U.S. housing market, which fell into a deep rut six years ago prompting a recession, has been recovering as low interest rates are pushing consumers to buy homes.

U.S. home resales hit a three-year high in February and prices jumped, adding to signs of an acceleration in the housing market recovery, data from the National Association of Realtors showed on Thursday.

"With the backdrop of a housing recovery that is now accelerating, we feel it is the right time to step up our investment in growth," Chief Executive Jeff Mezger said on a conference call with analysts.

He said that the company, which has seen average selling prices of its homes increase for 11 straight quarters, will invest in higher-priced markets as demand for larger homes is picking up.

Mezger said he was confident of the company being profitable in 2013. KB Home reported a net loss of $59 million and revenue of $1.56 billion in 2012.

KB Home invested about $350 million on land acquisition and development in the first quarter -- a significant increase over previous quarters, the CEO said.

The homebuilder raised about $330 million through a stock and debt offering earlier this year. It also signed a new credit facility for $200 million.

Lennar Corp (LEN.N), the No. 3 homebuilder, on Wednesday said it expects to spend about $500 million per quarter on new land acquisitions.

Shares of KB Home, which reported a smaller-than-expected first-quarter loss and a sharp jump in new home orders, rose as much as 4 percent to $22.36 on Thursday on the New York Stock Exchange. The stock is at a four-and-a-half-year high.

ORDERS JUMP

Net orders increased 40 percent to 1,671 homes in the quarter ended February 28. Orders are a key indicator for builders, who do not book revenue until they build and sell a house.

"Order growth was the standout," said David Williams, an analyst at Williams Financial Group, who attributed the jump to the company's presence in California.

Before the first quarter, KB Home's order growth was about 1 percent on a trailing 12-month basis, compared with a 32.8 percent on average for the peer group, he said.

KB Home's orders rose only 4 percent in the preceding quarter due to a sharp decline in the number of its housing communities.

KB Home's community count is expected to be higher in the second half of the year as the company invests in land acquisition, chief financial officer Jeff Kaminski said.

Margins have also been a concern for KB Home due to rising input and labor costs. This has prompted the company to increase prices.

KB Home's average selling price during the quarter rose 24 percent to $271,300, its highest first-quarter average selling price since 2006.

Gross margins rose 15 percent in the first quarter, and are expected to improve sequentially for the remainder of 2013.

Net loss narrowed to $12.5 million, or 16 cents per share, in the first quarter from $45.8 million, or 59 cents per share, a year earlier.

Analysts on average had expected a loss of 22 cents per share, according to Thomson Reuters I/B/E/S.

(Reporting by Prateek Chatterjee in Bangalore; Editing by Maju Samuel, Supriya Kurane)

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