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KB Home F2Q10 (Qtr End 05/31/10) Earnings Call Transcript

KB Home F2Q10 (Qtr End 05/31/10) Earnings Call Transcript

KB Home (KBH)

F2Q10 (Qtr End 05/31/10) Earnings Call Transcript

June 25, 2010 11:30 am ET


Jeff Mezger – President and CEO

Bill Hollinger – SVP and Chief Accounting Officer

Jeff Kaminski – EVP and CFO

Kelly Masuda – SVP and Treasurer


Michael Rehaut – JP Morgan

Dan Oppenheim – Credit Suisse

Ivy Zelman – Zelman & Associates

Stephen East – Ticonderoga

Joshua Pollard – Goldman Sachs

Jonathan Ellis – Bank of America/Merrill Lynch

Michael Smith [ph] – JMP Securities

David Goldberg – UBS

Rob Hansen – Deutsche Bank

Buck Home – Raymond James

Mike Widner – Stifel Nicolaus

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Good day everyone and welcome to the KB Home’s second quarter earnings conference call. Today’s conference call is being recorded and webcast on KB Home’s Web site at The recording will be available via telephone replay until midnight on July 5th by calling 719-457-0820 or 888-203-1112 and using the replay pass code of 3914926.

KB Home’s discussion today may include certain predictions and other forward-looking statements that reflect management’s current expectations or forecast of market and economic conditions and of the Company’s business activities, prospects, strategies and financial and operational results.

These statements are not guarantees of future performance and due to a number of risks, uncertainties and other factors outside its control, KB Home’s actual results could materially be different from those expressed in or implied by the forward-looking statements. Many of these risk factors are identified in KB Home’s filings with the SEC, which the Company urges you to read with care.

KB Home’s comments today may also include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and other Regulation G required information is provided in the Company’s earnings release, which is posted on the “Investor Relations” page of the Company’s Web site under “Recent Releases” and through the “Financial Information News Releases” link on the right hand side of the page.

And now, it is my pleasure to turn the conference over to Mr. Jeff Mezger. Please go ahead, sir.

Jeff Mezger

Thank you, Kelsey. Good morning, everyone. Thank you for joining us today for a discussion of our second quarter 2010 results. With me this morning are Bill Hollinger, our Senior Vice President and Chief Accounting Officer; and Kelly Masuda, our Senior Vice President and Treasurer.

I’d also like to welcome Jeff Kaminski, our Executive Vice President and Chief Financial Officer, who joined the KB Home team earlier this month. We are very pleased to have Jeff with us and we look forward to the value he will add in the years ahead.

I will begin with an overview of today’s housing market environment followed by a summary of KB Home’s operating strategy within this context. Next, I will provide a review of our second quarter results along with our actions to grow revenues and improve our business results going forward. Finally, I will comment on our outlook and competitive position for the remainder of 2010 and beyond.

A combination of both positive and negative factors continues to impact the housing market. On the positive side, affordability remains at incredible levels. By taking advantage of lower prices and historically, low interest rates, home buyers, especially, first time buyers, are finding they can now afford to buy the home they want in their preferred location.

In fact, as a result of today’s low prices and interest rates, mortgage payments on a median priced home have dropped below 20% of median household income. This is the lowest level on record dating back to 1971 according to the State of the Nation’s Housing report released last week by the Joint Center for Housing Studies of Harvard University. This extraordinary housing affordability has helped to spur activity, clear inventory and even stabilize prices in many areas.

At the same time, however, the disappointing employment report in May, served as a reminder that all is not yet well in the larger economy. Additionally, the month of May proved to be particularly challenging for the housing industry.

The Commerce Department reported this week that new home sales in May were at record lows, resulting primarily from the expiration of the Federal home buyer tax credit on April 30. The confluence of these indicators and events has produced an overall market that lacks much needed stability.

We are undoubtedly in a better position than we were a year ago and housing is on the road to recovery, but the recovery remains uneven, while the market is, in many ways, still finding balance. As we continued to move past the tax credit period, we know that demand will eventually come back and return to levels consistent with household growth.

Before I share the results of the second quarter, I will quickly summarize where we see our Company’s future within this environment. Utilizing our KBnxt Built to Order business model, KB Home has been executing a consistent strategy of operating our business as efficiently as possible and maintaining a healthy and liquid balance sheet, while transforming our operations and product offerings.

This integrated strategy started several years ago and remains in place today. At the first signs of the downturn, we set a course to build and preserve cash, streamline our operations to cut costs and reduce our inventory.

We also developed the Open Series innovative Line of Homes to lower our cost to build and compete effectively with resales and foreclosures. Because of these actions, we have continuously improved our business as evidenced by our second quarter results.

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