September 21, 2012 / 9:56 AM / 5 years ago

KB Home profit shows housing recovery on track; stock up

(Reuters) - KB Home (KBH.N), the fifth-largest U.S. homebuilder, posted a surprise quarterly profit and said revenue backlog rose to its highest level since the peak of the financial crisis, underlining a strengthening housing recovery.

The company’s shares rose as much as 14 percent to a 19-month high on the New York Stock Exchange on Friday afternoon. The stock was one of the top percentage gainers on the exchange.

The housing market recovery, which has been patchy, is likely to get a boost with mortgage rates falling to record lows in the wake of the Federal Reserve’s decision to bolster the economy by buying housing-related debt.

The average rate on a 30-year fixed mortgage fell 6 basis points to 3.49 percent in the week ended September 20, according to Freddie Mac’s primary mortgage market survey. That matched the previous all-time low.

“Confidence is coming up,” said Williams Financial analyst David Williams.

“We’re seeing new orders, deliveries, average selling prices, everything is moving in the right direction.”

The Standard & Poor’s homebuilder index .GSPHOME, which has almost doubled this year until Thursday, rose a further 2 percent.

KB Home earned 4 cents per share for the third quarter. Analysts on average expected a loss of 16 cents per share, according to Thomson Reuters I/B/E/S. [ID:nASA04UNQ]


The company, known for its green homes, said potential future housing revenue in backlog at August 31 rose 33 percent to $744.7 million.

“It is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise,” KB Home Chief Executive Jeffrey Mezger said.

The company said it is seeing “dramatic improvement” in its biggest market, California, where foreclosures kept recovery at bay.

U.S. housing starts rose 2.3 percent last month to an annual rate of 750,000 units, the Commerce Department said this week.

Net orders at KB Home increased 3 percent for the second straight quarter, to 1,900 homes in the three months ended August, and rose 16 percent in value to $493.3 million.

    Orders are a key indicator for builders who do not book revenue until they close on a house.

    “We are attracting first-time and first move-up home buyers who have higher incomes ... leading to a higher average selling price,” CEO Mezger said on a post-earnings conference call.

    Average selling prices jumped 8 percent to $245,100, marking the ninth consecutive quarter of year-over-year increases, KB Home said.

    The average size of homes delivered in the third quarter rose 160 square feet to 2,117, Mezger said.

    “Based on our current backlog we project that the trends of higher average selling prices and larger homes will continue going forward,” the CEO said.

    Margins rose to 17.5 percent in the quarter from 16.9 percent a year earlier.

    KB Home’s stock has almost tripled in value since touching a 21-year-low last October. It was up 14 percent at $14.93 in afternoon trading.

    Additional reporting by Kartick Jagtap in Bangalore; Editing by Joyjeet Das and Saumyadeb Chakrabarty

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