KB Homes 4th Quarter Earnings

KB Homes (KBH), one of the nation’s largest home builders which operates in nine states, released terrible fourth quarter and full year results earlier Friday and reported a loss for the seventh consecutive quarter. The expectations weren’t high given the current economy, as record foreclosures, failing prices, tighter credit, and weaker demand all teamed up to wreck KB Homes’ earnings. While the company was able to report gains in continued operations, charges for asset impairments and asset abandonment washed away any chance of reporting profit.

As expected, KB Homes recorded an enormous decrease in revenues for Q4 2008 to $919 million, down over 55% from last year’s fourth quarter revenues of $2.07 billion. While many explanations could explain this nose-dive, even a fifth-grader can put one and one together to understand that when delivered homes fall 52% for obvious reasons, revenues will most likely also fall. Sales plummeted from 8,132 in the 4th quarter ‘07,  to 3,912 only a year later. KBH’s average price per house fell over 6% to $232,200 from the prior year’s average of $247,800 due to the increasing number of homes for sale in the market. Here’s a look at the numbers:

Fourth Quarter 2008, Fourth Quarter 2007

Total Revenue: $919 million, $2,070 million

Average Home Price: $232,200, $247,800

Homes Delivered: 3,912, 8,132

Net Loss: ($307 million), ($773 million)

Per Share: ($3.96), ($9.99)

Full Year 2008, Full Year 2007

Total Revenue: $3,030 million, $6,420 million

Average Home Price: $236,400, $261,600

Homes Delivered: 12,438, 23,743

Net Loss: ($976 million), ($929 million)

Per Share: ($12.59), ($12.04)

The Plan

Management sees the company’s current performance (or lack thereof) as a reflection of the current economy and doesn’t see any short-term solution to our economic crisis, and in fact believes the housing market will continue to deteriorate into 2009. While KB Homes has changed its approach from a “one-size fits all” perspective to a “Built to Order” approach, the company feels its efforts in cutting expenses, overhead, and consolidating has been effective thus far, and when the market begins to rebound, they will be well positioned to be profitable. Management’s main focus in the future is to improve product design, to reduce and manage inventory investments, and to continue to attract the first-time buyer. KBH sees a larger percentage of their home sales to come from first time buyers in the future. In 2006, roughly 40% of their sales came from first-timers, while in this current condition, over 60% of sales can be attributed to this group.

KB Homes believes that, despite a terrible economy and posting atrocious numbers, they are in a better position to operate more effectively to face the cloudy future of the housing market. Their Build to Order business model offers freedom to provide as much or as little space desired, and the company feels this new approach will propel them in the future, even if 2009 doesn’t bring anything to cheer over.

Disclosure: None

Posted in Categories: Construction, Contributor, External Research, Stocks.

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Comment by Carol Baker

2009-01-12 10:18:00

What fantastic news! I’ve been dreaming about buying a new home but I don’t know anything about the market. All I hear is that it is bad, and this article really gave me hope. My brother just bought a home from a company called Taylor Morrison and he had a great experience with them. I’ve been thinking about requesting information from their website. I was exploring my financing options with one of their financial advisors and she told me that if I requested information I would be entered into a contest to win a dream vacation. I guess I’m just wasting time – you’re article has given me the confidence to go ahead a buy!

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