KB Home's Profit Jumps, But
Orders Decrease by 12%

KB Home, one of the nation's largest home builders, reported a 42% increase in profit for its first quarter yesterday, but said that its orders for new homes dropped amid signs of a cooling market.

For its fiscal first quarter that ended Feb. 28, the Los Angeles-based company reported that net income increased to $174.5 million, or $2.02 a share, from $122.7 million, or $1.41 a share, during the year-earlier period.

Orders, which reflect the revenue the company will receive in about two quarters down the line, fell 12% in the first quarter, compared with a year earlier. Bruce Karatz, chief executive of the home builder, said a higher cancellation rate contributed to the drop in orders.

Mr. Karatz blamed the decline on an overall cooling in the housing market and on selling by investors that has increased the supply in certain superheated markets on the coasts.

"It all adds up to a softening in demand from what we had a year ago," Mr. Karatz said in an interview.

The first-quarter earnings were released after the market closed yesterday. In 4 p.m. composite trading on the New York Stock Exchange, KB Home shares rose 34 cents to 64.59. Shares rose to $66 each in after-hours trading.

Mr. Karatz said he's optimistic that demand will remain relatively strong, but said it's too early to forecast any long-term sales trends. KB Home said it still expects fiscal 2006 earnings of $11.25 a share.

"I am surprised that they are so optimistic, given the reality of the market dynamics having changed so much," says Credit Suisse Group analyst Ivy Zelman.

The slowdown in orders comes as no surprise. In its annual report filed last month, KB Home said orders had decreased in January and February, compared with the year-earlier period.

Nevertheless, KB Home's order decline signals that a slowdown might not be limited to the luxury-home market, which some analysts say is the most vulnerable to a downturn.

Last month, Toll Brothers Inc., a luxury-home builder based in Horsham, Pa., rattled investors when the company announced a 29% decline in first-quarter orders. KB Home is known primarily as a builder of starter homes, but has been branching out into higher price ranges.

In the first quarter, KB Home's total revenue rose 34% to $2.19 billion from $1.64 billion a year earlier. The average selling price of the company's homes increased 17% to $276,200 in the first quarter, up from $236,300 in the year-earlier quarter.

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