KB Home Beats Orders Estimate on Housing Rally’s Strength

(Bloomberg) -- KB Home reported stronger-than-expected quarterly orders as buyers rushed to take advantage of historically low mortgage rates. The shares rose the most in more than seven months.

• For the three months through November, signed purchase contracts rose 42% from a year earlier to 3,937, the Los Angeles-based company said in a statement Tuesday. The average estimate of analysts surveyed by Bloomberg was 3,401.

Key Insights

• The order total was the highest for the company’s fiscal fourth quarter since 2005. The of orders increased in all of the company’s four regions, led by the Southeast, with a 69% jump. The gross margin in the quarter was 21% -- a level that Chief Executive Officer Jeffrey Mezger said should be sustainable throughout the year.
• The pandemic rally, driven by low mortgage rates, is lifting markets that were previously showing some weakness, including California, where KB Home has a heavy focus.
• KB Home, which already had plenty of offerings for first-time buyers, has been pushing further in that direction. That gives the company an edge in a market where entry-level buyers are increasingly getting priced out of homeownership. The nationwide inventory of existing homes fell to the lowest level on record in November.
• The company’s build-to-order model has enabled it to respond directly to customers’ needs. Some buyers during the pandemic have favored personalized houses with offices and other stay-at-home amenities.

Market Reaction

• The shares were up 7.5% to $36.70 at 9:44 a.m. New York time Wednesday, the best performance in an S&P index of homebuilder stocks. They earlier climbed as much as 11%, the biggest intraday gain since late May. Through Tuesday’s close, KB Home shares had fallen 4.8% in the past 12 months.

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• Click here to read the earnings statement.

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