KB Home profit up 65 percent

Tuesday, March 22, 2005 | 11:01 a.m.

SUN STAFF AND WIRE REPORTS

KB Home, Southern Nevada's largest homebuilder, will enter the Reno market this year, company officials said in a conference call this morning, adding to a growing list of builders looking north for growth.

KB Home delivered higher-than-expected fiscal first-quarter results that showed no signs of a slowdown in the booming home-building sector.

The Los Angeles-based builder on Monday reported a 21 percent revenue increase and a 65 percent rise in earnings in the quarter that ended Feb. 28. And the company raised guidance for full-year 2005 even though the industry is expecting mortgage rates to tick up.

Fatter profit margins and higher home prices drove much of the stellar results. The average price of homes delivered in the quarter rose 10 percent.

The company's revenue totaled $1.64 billion in its fiscal first quarter, up from $1.35 billion a year ago. Net income jumped to $122.7 million, or $2.82 a share, from $74.2 million, or $1.75 a share, a year earlier. The results surpassed the average estimate of analysts surveyed by Thomson First Call of $2.57 a share.

The company closed escrow on 3,759 homes in the Las Vegas area in 2004, according to Home Builders Research Inc.

The company not only is expanding to Reno but other nearby secondary markets throughout the country.

Bruce Karatz, chairman and chief executive, said entering ancillary markets is not a shift in strategy.

"It's not that there aren't other opportunities, but there is a limitation to how many new operations you can get up and going any one year," he said during today's conference call. "This is lower hanging fruit."

More information on the company's Reno expansion plans were not immediately available this morning.

KB Home will join homebuilders Toll Brothers and Del Webb, which have set up shop in Reno in the past couple of years, along with Lennar Corp., which announced this year its expansion plans to Northern Nevada.

The average cost of a KB house in the Southwest, which includes Arizona and Nevada, was $233,400 during the first quarter, compared with $193,600 in the year ago quarter, the company reported.

Some market observers were worried that the heavy winter rains in California would hamper the company's results and stymie new home orders since about 20 percent of KB Home's closings come from California.

Orders -- which serve as a barometer for revenue two or three quarters in the future when a home sale closes -- rose 23 percent. On the West Coast, orders climbed 13 percent despite the torrential rains.

On Monday JMP Securities analyst Jim Wilson reiterated his market outperform rating on KB Home stock and raised his 2005 earnings projections in anticipation of strong fiscal first-quarter results.

KB Home's "aggressive expansion into Florida" and decision to expand its housing products to target move-up and active adult buyers in addition to entry-level buyers is driving the company's growth, said Wilson, in a note.

KB Home raised guidance for 2005 to $15.75 a share, which is $1.25 more than previously projected and ahead of the average Wall Street estimate of $14.59.

The company ended the quarter with a backlog of 23,334 units valued at $5.8 billion, up from 16,660 units valued at $3.67 billion a year ago.

KB shares rose $3.60, or about 3 percent, to $120.30 in midday trading today.