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KB Home Net Income Rises 17%

September 17, 2003|Bonnie Harris | Times Staff Writer

KB Home Corp. reported Tuesday that its third-quarter profit rose 17% -- easily beating analysts' expectations -- as it benefited from what company executives called "a perfect storm" for the home builder: continued strong demand for houses, low interest rates and solid acquisitions.

The Los Angeles-based company, one of the nation's largest home builders, said it earned $97.8 million, or $2.33 a share, in the fiscal quarter ended Aug. 31, compared with $83.9 million, or $1.95 a share, in the year-earlier quarter.

The latest earnings exceeded analysts' consensus estimate of $2.14 a share, according to Thomson First Call. Total quarterly revenue rose 12% to $1.44 billion. But sales in California remained flat, and KB's delivery of homes fell on the West Coast and in the central region. Overall, KB delivered 6,850 homes in the quarter, up 5.5% from a year earlier.

Another big new-home builder, Lennar Corp., on Tuesday also reported solid profit increases in the quarter ended Aug. 31. The Miami-based company posted net income of $201.6 million, or $2.43 a share, up 42% from $142.2 million, or $1.83, a year earlier. Those results also beat analysts' expectations.

Lennar delivered 7,929 homes during the quarter, compared with 6,993 a year earlier. The company said deliveries were higher in most of its markets, especially in California and Illinois. Lennar has been growing in California through acquisitions. In July, the company and a partner agreed to buy Newhall Land & Farming Co., one of the state's largest landowners.

KB Home, which focuses on building affordably priced houses for first- and second-time buyers, said an increase in projects in its Southwest and Southeast regions helped push orders up 16% in the latest quarter to 7,319.

Jeff Mezger, chief operating officer, said KB's recent acquisitions in Florida, Georgia and North Carolina have expanded territory in the Southeast and continues to bolster new-home orders. He said the company's order backlog at the end of the quarter was the highest in history.

"That is really our crystal ball for the future," he said of the order backlog. "And what we see there is very good news."

This month KB Home announced it had purchased Chicago-based Zale Homes for about $33 million, including debt, which marked its entry into the Midwest. Privately held Zale delivered 302 homes last year and had revenue of about $106 million. The company has divisions in nine states, with California as its largest and most profitable market.

KB Despite revenue was up due to continued price increases. Backlogs in the Southwest were at an all-time high as well, and so far KB has not been affected by rising interest rates, he said.

James F. Wilson, a housing industry analyst at JMP Securities in San Francisco, said he would have liked to see better performance in KB's mortgage banking division, home sales and deliveries.

"They keep coming in better on the margins, but the question is how long can they sustain that?" said Wilson, who took KB off his "buy" list on Tuesday. "There's nothing wrong with beating the numbers, and they're obviously doing something right with pricing and cost structure. But it will be interesting to see how the market interprets things after all the layers are gone through."

KB Home announced its earnings after the close of markets. In New York Stock Exchange trading, KB shares rose $1.91 to $59.50. Lennar's stock closed up $2.37 to $74.62, also on the NYSE.

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