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KB Home posts profit as chief says company is now 'on offense'

September 21, 2012|By Alejandro Lazo
  • KB Home Southern California president Steve Ruffner tours the Sage development in Irvine Ranch.
KB Home Southern California president Steve Ruffner tours the Sage development… (Anne Cusack/ Los Angeles…)

Los Angeles home-builder KB Home surprised Wall Street on Friday with a positive earnings report for the third quarter reflecting the recent housing rebound in California and beyond.

The company booked $3.2 million in profit, or 13 cents a share, compared with a loss of $9.6 million, or $2.50 a share, during the same period last year. Analyst estimates had expected a 15-cents-per-share loss, according to Bloomberg News. Revenue was up 16% to $424.5 million after the company sold more homes at higher prices. The company’s third quarter ended Aug. 31.

The company's share price rose 13.8% in morning trading to $14.92.

In a conference call with analysts Friday morning, KB Home chief executive Jeffrey Mezger said that while demand remained strong in the coastal markets of California -- places such as the Bay Area and Orange and Los Angeles counties -- the company was now experiencing strength in more inland markets as well.

“We are now seeing dramatically improved market conditions,” Mezger said.  “It is simply a different market than it was six months ago in the inland areas.”

Mezger repeated several times that the company is now going “on offense” and will continue to aggressively acquire land.

“The housing market recovery is accelerating as inventory continues to decline and prices are now rising,” Mezger said. He said that California, in particular, was set to continue recovering and that the company was well positioned to take advantage of those improvements.

The company’s net orders increased to 1,900 in the third quarter, up 3% from net orders of 1,838 in the year-earlier quarter. Prices for new homes at KB Home are improving, particularly on the West Coast. The company said that during the first nine months of this year the average cost of a home in its West Coast division was $377,200, compared to $321,800 during the same period last year.

The company had about $420 million worth of cash and cash equivalents on hand at the end of the quarter.

Overall the mood has improved in recent months for home builders. Home-builder sentiment rose to its best level in six years in September, according to an index from the National Assn. of Home Builders and Wells Fargo. That index has risen for five straight months.

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