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KB Home, (KBH)

Q3 2011 Earnings Call, Sep 23, 2011

September 23, 2011 11:30 am ET


Jeff J. Kaminski - Chief Financial Officer and Executive Vice President

Jeffrey T. Mezger - Chief Executive Officer, President and Director


Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

Nishu Sood - Deutsche Bank AG, Research Division

Stephen F. East - Ticonderoga Securities LLC, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Joshua Pollard - Goldman Sachs Group Inc., Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Michael G. Smith - JMP Securities LLC, Research Division

Buck Horne - Raymond James & Associates, Inc., Research Division

Unknown Analyst -

Josh Levin - Citigroup Inc, Research Division



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» KB Home's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» KB Home's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» KB Home CEO Discusses Q4 2010 Results – Earnings Call Transcript

Good day, everyone. Welcome to KB Home's 2011 Third Quarter Earnings Conference Call. Today's conference call is being recorded and webcast on KB Home's website, at The recording will be available via telephone replay until midnight, Eastern Time, on September 30, 2011, by calling (719) 457-0820 and using the replay passcode of 6973133. A replay will also be available through KB Home's website for 30 days.

KB Home's discussion today may include certain predictions and other forward-looking statements that reflect management's current expectations or forecasts 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 of its control, KB Home's actual results could be materially 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.

The discussion today may also include references to 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 issued earlier today, which is posted on the Investor Relations page of the company's website, under Recent Releases. And through the financial information news releases link on the right-hand side of the page.

I'll now turn the conference over to Mr. Jeff Mezger. Please go ahead, sir.

Jeffrey T. Mezger

Thanks, Melanie, and good morning, everyone. I'd like to thank you all for joining us today to discuss the results of our third quarter of 2011. With me this morning are Jeff Kaminski, our Executive Vice President and Chief Financial Officer; and Bill Hollinger, our Senior Vice President and Chief Accounting Officer.

While we all know current economic conditions remain difficult, one very encouraging trend that gained momentum in the third quarter was the growing number of homebuyers who are recognizing the extraordinary value and affordability inherent in today's housing market. This suggests that the stabilization process continues, although we will not have a full housing recovery without job growth and consumer confidence.

In the short term, we are managing the current market realities but we look forward to the point in time in which intrinsic demographic trends and economic expansion will inevitably move housing from a stabilizing environment to a growth environment once again.

What I would like to focus on during this call is the strategy we are continuing to adhere to at KB Home in order to maneuver successfully within this environment, to achieve profitability and to position our company for growth in the years ahead. This strategy, which we have been executing over many quarters, includes reinvesting in highly desirable submarkets, primarily in our targeted growth states of California and Texas; lowering our overhead levels and cost to build; and maintaining a balance sheet that both supports our current business and provides flexibility for future opportunities.

Most importantly, our results demonstrate that our strategy is working, and that we are making tangible progress toward our goal of profitability. In fact, despite the ongoing headwinds in the market, many of the key metrics of our business are now trending in a positive direction. We have substantially lowered our break-even point while establishing a sales pace that is setting us up for a brighter future.

So while the markets are not necessarily getting better, we are better as a company. And although we remain cautious in the current environment, the improvements in our results give us confidence that we are on a right path.

One of the primary drivers of our investment strategy and improved results is our deliberate weighting of resources and investment dollars to California and Texas. As we have shared on previous calls, towards the beginning of 2009, over 75% of our land acquisition and development dollars have been going into these 2 states, each of which has its own intrinsic demand dynamics.

Regarding California, there's a different housing picture in the coastal regions than the one you see in the more inland regions of the state. From the Bay Area to Orange County and San Diego, the demand for new homes in these desirable markets was never met in the boom years. People have always wanted to live in these attractive areas near jobs, transit, recreation and good schools. And those who could not previously afford to are now coming back to buy.

These are submarkets where prices are stable, supply and demand are in balance, there are fewer foreclosures and new home competition is limited. As the coast have stabilized and continued to improve, we would expect this positive trend to move out eventually to more of the commuter-oriented inland areas of California where we are also well positioned.

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