KB Home Sees Order Slowdown

The builder says it has seen increased cancellations and a decline in new-home demand.
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The winter sales season continues to look slow for homebuilders.

KB Home

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became the latest to company to report that it recently has seen increased cancellations and declining orders for new homes.

In its annual report filed late Friday, KB Home said it is keeping its 2006 revenue guidance intact for now, even though sales have weakened prior to the all-important spring selling season. The company began fiscal 2006 with a seven-month backlog of homes sold but not yet delivered, which represents 25,722 units, or $6.76 billion in revenue.

"Based on our backlog, we expect revenue growth for the first half of fiscal year 2006 to be consistent with the growth rates we have experienced over the last several years," the company said in the 10-K. "There are signs, however, that consumer demand in the United States for residential housing at current prices is softening."

Los Angeles-based KB Home pointed to a dropoff in December single-family housing starts, which fell 12% from November and 8% from a year earlier. A Census Bureau report also said that the median sales price for new homes fell about 3% in December from a year earlier.

"Our results to date in fiscal year 2006 reflect these broader market trends," KB Home said. The builder said that in the first two months of the year it has had an increase in order cancellations, as well as fewer new orders. Last week,

Toll Brothers

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also warned of a

slowdown in orders.

"It is too early in our prime selling season (February through June) to forecast whether our experience in the first two months of the year will continue," KB Home said. "Historically, demand for new homes in the United States has been strong during periods of economic expansion and growth in employment, and we continue to believe that the state of the U.S. economy is the single most important long-term indicator of our future financial performance."

The company said it may "moderate" its revenue guidance for fiscal 2006 if current trends don't improve. KB said, however, that it doesn't expect to change its earnings forecast for the year.

The company previously forecast earnings of $11.25 a share and total revenue of $12 billion for the year ending in November. Analysts polled by Thomson First Call expect earnings of $11.31 a share and revenue of $11.76 billion.

KB Home shares fell 1.9%, or $1.27, to close at $65.95 Monday.