Softening consumer demand for new homes and fewer homes being built are cutting into the stock price of KB Home.

In the past year, since reaching $66.78 last April 2, the company has seen the value of its shares drop by nearly 12% to close at $58.93 on the same date of this year.

And its most recent quarterly financials didn’t help.

On March 24, when the Westwood homebuilder released its first quarter financials after the market closed, its stock price was $61.79. The following day it closed at $58.57, or a decrease of more than 5%.

Shares closed at $55.61 on April 3. 

Quarterly results

For the first quarter ending Feb. 28, KB Home reported net income of $110 million ($1.49 a share) compared with net income of $139 million ($1.76) in the same period of the previous year. Revenue dropped by 5% from the first quarter of the prior year to $1.4 billion.

The company attributed the lower revenue and net income to lower-than-anticipated new home builds.

Jeff Mezger, the chief executive of KB Home, said in a conference call from March 24 with analysts to discuss the first quarter financial results that the home deliveries number was impacted by 150 fewer inventory homes being sold than were projected.

“A timing issue impacted roughly 75 of our deliveries in Southern California following the wildfires early this year,” Mezger said.

Jay McCanless, an analyst in the New York office of Wedbush Securities in downtown, asked during the call about the impacts of the wildfires on KB’s rebuilding efforts.

Rob McGibney, president and chief operating officer of the company, said much of the rebuilding had not started yet.

“I think that’s going to be a long and ongoing process, but you know, it’s a big state, a lot of volume, a lot of crews, and I just I don’t expect that that’s going to be a significant ongoing drag on our timing to get meters and utility hookups on houses,” McGibney said.

“It’s getting better every day, and I think that’ll be back to normal fairly soon,” he added.

Demand soft for new homes

Mezger said that with a significant number of new community openings, he expected to achieve flat year-over-year net order comparison for the first quarter. But as the quarter progressed following its January year-end conference call, it became apparent that demand was softer for new homes than he had expected.

So, the company acted in mid-February in evaluating its base pricing in every community relative to market conditions and then repositioning those with a focus on offering the most value, he said.

“We were encouraged by buyers’ responses to these actions and saw a meaningful improvement in our net orders in the last two weeks of the quarter, which has continued into the first three weeks of our second quarter,” Mezger added. “For the trailing five weeks, our weekly net sales have averaged about 300 per community.”

New community openings included South El Monte in early March, Creekside at Estancia in Austin, Texas later in the month, and in late March, the company’s first fire resilient community, Dixon Trail in Escondido.

Utilizing fire-resistant building materials, methods and features based on over a decade of Insurance Institute of Business & Home Safety wildfire research, the Dixon Trail community is designed to IBHS’s highest level of protection against direct flame contact, radiant heat and embers, which helps to reduce the likelihood of wildfire spread.