KB Home Cuts Forecast

KB Home (KBH) reported second-quarter earnings that slightly beat analyst estimates, but the homebuilder lowered its guidance for the year due to the continued slowing U.S. housing market.

KB Home said Thursday that its earnings for the quarter ended May 30 increased 14% to $206.6 million, or $2.46 a share, from $181.5 million, or $2.06 a share, a year earlier. Analysts expected earnings of $2.42 a share. The earnings per share were helped by the company's buyback of 2 million shares in the quarter.

Revenue increased 22% in the quarter to $2.59 billion, less than the $2.64 billion analysts were projecting.

The company joined a chorus of other builders by reducing its 2006 earnings guidance, projecting a profit of $10 a share. The company's previous forecast called for earnings of $11.25 a share, while analysts expect EPS of $10.59.

"In many regions across the country, market performance has receded from the all-time highs established in recent years, largely due to a sharp reduction of speculative purchases and an over supply in new and resale inventory," Bruce Karatz, the company's CEO, said in a statement.

"Although we do not see market conditions improving significantly in the second half of the year, we remain squarely focused on driving performance and creating shareholder value by focusing on our build-to-order business model and the value of our brand."

For the quarter, the company's new orders dropped 19% to 9,908 units. Its unit backlog -- homes sold but not yet delivered -- totaled 27,412 units at the end of May, representing a $7.66 billion backlog.

The company's gross margin on housing sales dropped to 25.8% in the quarter from 26.8% a year earlier, but this drop was partially offset by a slight reduction in selling, general and administrative expenses as a percentage of revenue.

With KB Home, another issue for investors is its growing debt load, which is on the high end for builders. The company's long-term debt-to-equity ratio rose to 1.2x in the quarter, up from 1x a year ago.

In comparison, Toll Brothers (TOL) has a ratio of 0.72x.

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