Higher California prices drives KB Home profit, spark sector rally

Wed Mar 19, 2014 3:02pm EDT

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

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

Credit: Reuters/Mike Blake/Files

Related Topics

(Reuters) - KB Home (KBH.N), the No. 5 U.S. homebuilder, reported a first-quarter profit for the first time since 2007 as it sold homes at higher prices in California, its largest market, and indicated towards a strong spring selling season.

KB Homes' better-than-expected results sent its shares up as much as 10 percent and sparked a rally in the stocks of U.S. homebuilders, including a 3 percent rise in the shares of No. 3 Lennar Corp (LEN.N), due to report results on Thursday.

Los Angeles-based KB Home said on Wednesday its overall average selling price rose 12 percent in the quarter ended February 28, with the 30 percent increase in the West Coast comfortably outpacing the rise in the Southwest, Central and Southeast regions.

"California has benefited from home price appreciation as the markets have recovered, the magnitude of our increase far outpaces the market," Chief Executive Jeffrey Mezger said on a post-earnings call.

The homebuilder said it expects prices in all regions to continue climbing moderately through the rest of the year.

KB Homes, like its peers, is expected to benefit from a recovering U.S. economy as buyers become more confident and adjust to the higher interest rates.

The company saw a dramatic increase in the number of potential buyers in February, Mezger said, indicating a strong start to the spring selling season - traditionally the most important period for builders.

"Thanks Jeff for telling the world that Spring is not a bust," analyst Ivy Zelman of Zelman & Associates said on the call.

D.R. Horton Inc (DHI.N), the No. 1 U.S. homebuilder, in January had forecast a "very strong" spring selling season, but most analysts have been a bit wary of expectations.

"Thus far, we have viewed housing demand this spring selling season as good, not great, as certain regions have seen increased traffic year-on-year, while others have seen a material slowing," analyst Stephen Kim of Barclays wrote in a note on March 18.

U.S. homebuilder sentiment edged up in March, according to the National Association of Home Builders, but sentiment remained below 50, which indicates more builders view market conditions as poor than favorable.

KB Homes said new home orders, a key indicator for builders who do not book revenue on a house until the sale is completed, rose 6 percent to 1,765 units in the first quarter.

The company's quarterly net income was $10.6 million, or 12 cents per share, compared with a loss of $12.5 million, or 16 cents per share, a year earlier.

Analysts on average were expecting a profit of 8 cents per share, according to Thomson Reuters I/B/E/S.

The company's overall deliveries fell 3 percent to 1,442 homes. While deliveries in the Southwest, Central and Southeast regions rose, deliveries slumped 32 percent in the West Coast, due to a lower backlog at the start of the quarter.

KB Homes's backlog rose 4 percent to 2,880 homes as of the end of the quarter.

Shares of KB Homes were trading up 7 percent at $18.93 in late afternoon trade on the New York Stock Exchange. They had touched a high of $19.43 earlier in the session.

(Editing by Savio D'Souza)

FILED UNDER: