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Both firms exceed analyst expectations

Homebuilder

Homebuilders Lennar (LEN) and KB Home (KBH) raised some serious skepticism in the days leading up to their earnings release, but it appears both builders exceeded expectations on Tuesday.

KB Home reported a third-quarter profit that propelled more than 700% amid double-digit revenue growth and higher selling prices.

Total revenue for the homebuilder rose 29% to $549 million for the quarter, up from $424.5 million a year earlier. Year-over-year revenue growth in each of the company’s homebuilding regions exceeded 25%.

Analyst expectations pegged per-share earnings at just 21 cents and revenue at $567 million.

Net income increased significantly to $27.3 million, or $.30 per diluted share, compared to net income of $3.3 million, or $.04 per diluted share, in the third quarter of 2012. 

Home deliveries for the builder also were up 6.1% to 1,825 homes, while net orders dropped 8.6% to 1,736 units.

Lennar’s third-quarter earnings report was nothing to scoff at either. Lennar’s third-quarter profit increased 39% after the firm experienced an increase in orders and deliveries  — which increased 37% to 4,990 homes — and as margins also improved.

The homebuilder posted net earnings of $120.7 million, or $0.54 per diluted share, which includes a $67.2 million tax provision. The third-quarter numbers compared to year-ago net earnings of $87.1 million, or 40 cents per diluted share.

In anticipation of the firms’ earnings, Sterne Agee analyst Jay McCanless maintained neutral ratings for both builders, recognizing that without new first-time homebuyers they will be somewhat strained. But the firm's leadership maintained a positive outlook after the latest report.

“The momentum we have built in our business continued to fuel our financial performance in the third quarter as we generated strong revenue, net income and earnings per share results,” said Jeffrey Mezger, president and chief executive officer of KB Home.

Mezger noted that his company is seeing meaningful top-line and bottom-line benefits from its strategy of investing in attractive land positions across the country, primarily targeting locations with limited housing inventory and higher household incomes. "With the goal of increasing our community count, net orders and deliveries, we are aggressively pursuing opportunities to invest in land and land development."

"We continue to see long-term fundamental demand in the market driven by the significant shortfall of new single-family and multi-family homes built over the last five years,” said Lennar CEO Stuart Miller. “While there may be bumps along the road that may impact the short-term pace of the recovery, the long-term outlook for our business remains extremely bright," he added.

KB Home’s Mezger noted that the fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy and positive demographic trends.

"Given these factors, 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. "In balancing community count, sales pace and margin expansion in this environment, our revenues and net income improved substantially during the third quarter, while our net orders moderated. Nonetheless, we believe there is tremendous potential in our served markets and that we are well-positioned for future growth," added Mezger.

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