KB Home Posts Surprise Profit

(KB Home earnings report updated with analyst action and commentary.)

LOS ANGELES (TheStreet) -- KB Home(KBH) shares jumped Friday morning after the struggling homebuilder posted a surprise quarterly profit.

KB Home said cost cuts led it to post a fourth-quarter profit of $17.4 million, or 23 cents per share, in the period ended Nov. 30. The recent quarter's surprise profit reflected a one-time tax benefit of $2 million. Analysts had been looking for the homebuilder to book a loss of $16.1 million, or 17 cents per share.

Stifel Nicolaus analyst Michael Widner noted that KB Home's "dramatic decline in [selling, general and administrative] expenses and sizable improvement in gross margins drove the beat," adding that "results took KBH from being a relative laggard to the group on SG&A (as a percent of revenue) and about average on gross margins (excluding impairments) to above average on both metrics."

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"We were pleasantly surprised, particularly with the improvements coming in a tough quarter for housing," Widner said.

Investors were also impressed. KB Home shares shot up more than 8% amid heavy trading in the first minutes of trading before falling back slightly. About halfway through the session KB Home shares were still up 5.4% to $15.11. More than 7 million shares were in play, compared with their average full-daily trading volume of 2.9 million.

Standard & Poor's homebuilders analyst Ken Leon maintained a strong sell rating on KBH shares but raised his price target by $3 to $12, citing the firm's 1.6% decline in year-over-year revenue, down 10% sequentially from the prior quarter.

"With backlog decreasing 38% in [the fourth quarter] and contract cancellations down 25%, we forecast flat revenues in [the fiscal year 2011, ended in November]," he noted.