Despite reporting a year-end surge in profits, Los Angeles homebuilder KB Homes saw its stock plummet 16 percent Tuesday after its chief executive said the company expected a drop in gross margins in the current quarter.

Shares fell $2.70 in Tuesday trading to close at $13.87 after

Chief Executive Jeffrey Mezger said on an earnings call with investors that margins could “drop significantly” in its current quarter as the company faces rising costs and heavier use of sales incentives and price reductions.

“We do not expect to reach our housing gross profit margin goal of 20 percent in 2015,” Mezger said during the call.

Mezger’s bleak outlook reversed earlier gains from the company’s earnings report, which boasted growing orders and revenues that beat analysts’ expectations.

KB’s profit surged in the quarter ended Nov. 30 as the company recorded a tax benefit of $824.2 million by reversing a prior write-down of assets.

The company reported net income, which included the tax benefit, of $853 million ($8.36 a share) for the quarter ended Nov. 30, compared to $28 million (31 cents a share) in the same period a year earlier. Revenue rose 29 percent to $796 million.

Analysts expected the company to report net income of $8.63 a share on revenue of $777 million.

The number of homes delivered increased 9 percent in the fourth quarter to 2,229, with the average selling price up 17 percent to $351,500.

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