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Updated from Sept. 21

KB Home

(KBH) - Get KB Home Report

posted a 6% rise in third-quarter revenue late Thursday, but the company delayed its profit numbers because of an internal review of stock option grants to CEO Bruce Karatz.

The homebuilder said revenue totaled $2.67 billion, up from $2.53 billion a year earlier. Analysts expected revenue of $2.66 billion, according to Thomson First Call.

KB shares were trading up 53 cents, or 1.2%, to $43.58 Friday morning.

Though revenue was higher, new orders -- a sign of future growth -- fell 43% to 10,467 units.

Karatz, in a press release, reiterated the continuing weakness in the housing market, particularly in formerly strong markets, such as California, Nevada, Arizona and Florida.

"These and other markets have experienced a rapid change in investor activity from buying to selling homes as well as decreasing home purchases by noninvestors, leading to a relative oversupply of new and resale inventory, lack of affordability and high cancellation rates," he said.

These high cancellations likely won't stabilize in the short term, writes Bank of America analyst Dan Oppenheim in a research note Friday.

"We should expect to see high levels of cancellations as long as buyers see that they could purchase a home for less today than their agreed-upon contract price," Oppenheim writes.

The small deposits required from builders make it easy for buyers to cancel their contracts, he continues.

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"It would seem to us that builders should increase deposits to ensure that buyers are likely to close on a home ... the reality is that competitive pressures are leading builders to lower deposits rather than raise them," Oppenheim says.

As sales slow, KB Home continues to reduce its land purchases, while instead spending a good amount of money on share repurchases.

The company bought back two million shares of its stock in the quarter, bringing its total purchases for the year to roughly six million shares at a price of $377.4 million.

The company is authorized to purchase an additional four million shares.

KB Home's buybacks and use of its

growing cash pile has been in focus for both investors and bondholders.

Equity holders are seeking for the builder to continue with share repurchases, while bondholders are looking for the company to hold on to its cash and boost liquidity.

"In response to the shifting market dynamics and to position the company for the future, we are currently focused on generating cash and strengthening our financial position," Karatz said.

"We expect to lower our outstanding debt and improve our leverage ratio by the end of the year and into 2007, and prudently repurchase shares of our common stock as we manage through the housing market's transition to an ultimately more normalized, sustainable supply and demand balance."

The company isn't holding an earnings call. Although it didn't specify exactly why, it is likely due to the ongoing options grant review. The company said last month that the

Securities and Exchange Commission

is conducting an informal inquiry into its grants.

Two weeks ago, KB Home announced that it expected earnings per share of $1.85 to $1.95 in the third quarter, down from $2.55 a year earlier.