KB Home (KBH), a U.S. homebuilder that targets first-time buyers, reported third-quarter earnings that beat analyst estimates as prices and sales jumped.
Profit for the three months through August was $27.3 million, or 30 cents a share, up from $3.3 million, or 4 cents, a year earlier, the Los Angeles-based company said today in a statement. The average of 20 analyst estimates was for earnings of 23 cents a share, according to data compiled by Bloomberg. Orders fell 9 percent from a year earlier, indicating rising mortgage rates may slow growth.
A tight supply of existing homes on the market is drawing buyers into new-home sales offices and boosting prices in many of KB Home’s biggest markets. Construction of single-family houses climbed 7 percent in August to a 628,000 annual rate, the most since February, the Commerce Department said.
“KB home has benefited from their exposure to the California and Texas markets, which have had low inventory levels in the existing-home market and strongly rising prices,” Drew Reading, a Bloomberg Industries analyst covering homebuilding, said in an interview before the results.
KB Home’s average selling price increased 22 percent from a year earlier to $299,100. Revenue jumped 29 percent to $549 million, as deliveries increased 6 percent.
The company is vulnerable to rising mortgage rates because many of its customers are first-time buyers in the already pricey California market, said Jay McCanless, a Nashville, Tennessee-based analyst at Sterne Agee & Leach Inc. Net orders fell to 1,736 homes from 1,900 a year earlier. The company’s contract backlog, an indication of future sales, fell to 3,039 from 3,142 homes in August 2012.
“We are not as confident in the ability of the entry-level consumer to get financing,” McCanless, who has a neutral rating on KB Home shares, said in a telephone interview before the results. “And since we believe the majority of KB’s business comes from first-time buyers, we’re taking a more cautious approach to our evaluation of the stock.”
The slowdown is probably temporary as low inventory, an improving economy and positive demographic trends boost the housing market, KB Home Chief Executive Officer Jeffrey Mezger said in the statement.
“We believe that the recent slower pace of the recovery caused by an uptick in mortgage interest rates is a temporary effect, and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing,” he said.
KB Home fell 3.4 percent yesterday to $17.03. The shares have gained 7.8 percent this year, compared with a 2.8 percent decline for the 11-company Standard & Poor’s Supercomposite Homebuilding Index.
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