KB Home (KBH) is scheduled to release its second quarter 2011 results before the market opens on June 29, 2011. Los Angeles, California-based KB Home realized a loss of 49 cents per share in the first quarter, which is wider than the Zacks Consensus Estimate of a loss of 27 cents per share.
For the upcoming quarter, the Zacks Consensus Estimate for KB Home is pegged at a loss of 32 cents per share, which reflects an annualized improvement of 20%. The downside potential for the estimate, which can essentially be viewed as a proxy for future earnings surprises, is 28%.
With respect to earnings surprises, the company missed the Zacks Consensus Estimate in the trailing four quarters. The average earnings surprise is 13.34% (downward direction), with substantial negative surprise being recorded in the last quarter.
First Quarter Recap
KB Home posted a narrower loss of $38 million or 49 cents per share in the first quarter of fiscal 2011, compared with $54.7 million or 71 cents per share in the year-ago quarter.
The loss in the quarter excluded joint venture impairment charges of $53.7 million and a loss on loan guaranty of $22.8 million related to the company’s investment in South Edge, LLC.
Total revenues fell 25% to $196.9 million, mainly due to a 26% decline in housing revenues to $195.3 million. The increase in housing revenues reflected a 28% decrease in the number of homes delivered to 949 homes, partly offset by a 4% rise in average selling price to $205,700.
The Financial Services business, which include the KB Home’s equity interest in an unconsolidated mortgage banking joint venture, delivered a 12% rise in revenues to $1.6 million. KB Home had cash and cash equivalents of $735.8 million and total debt of $1.7 billion as of February 28, 2011.
Estimate Revisions Trend
Earnings estimate for the second quarter of fiscal 2011, is currently pegged at a loss of 32 cents per share. Sluggish growth in the U.S. construction and homebuilding industry keeps the analysts at bay regarding the stock.
Agreement of Estimate Revisions
Out of the 15 analysts covering the stock for the second quarter of fiscal 2011, none raised their estimates over the last 30 days. However, the weak industry performance has forced 2 analysts to reduce their estimates during the same period.
Magnitude of Estimate Revisions
Following the first quarter earnings release in April, the second quarter earnings per share were projected at a loss of 12 cents. However, in the last 60 days, the estimate moved downward and stood at a loss of 28 cents per share.
In the last 30 days, the estimate plunged further to a loss of 30 cents per share. However, the estimate once again dropped by a penny to a loss of 31 cents per share over the past 7 days.
Our Take
A depressed housing industry is the biggest concern for any homebuilder including KB Home. Besides, there is no sign of a speedy recovery. Home sales declined consistently in each of the first three months of the year. The situation is feared to deteriorate further. Moreover, a lack of geographic diversity signifies that the company is heavily exposed to fluctuations in limited markets.
In addition, house prices also plunged continuously, driven by an excess supply of homes in the face of depressed demand and tough competition from resale homes, foreclosed homes, short sale homes and rental housing.
Thus, keeping these in mind, the shares of KB Home are maintaining a Zacks #4 Rank, which translates into a short-term Sell rating.
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