KB Home (KBH) shares slumped lower in pre-market trading Thursday after the California-based home builder posted softer-than-expected first quarter earnings amid a noted slowdown in new home sales and the biggest bump in mortgage rates in more than two years.
KB Homes said profits for the three months ending in February, the group's fiscal first quarter, rose 44.1% from last year to $1.47 per share, but missed Street forecasts by nearly a dime. Group revenues were also light, rising 23% to $1.4 billion as delivered home were flat to last year's levels at 2,868 units.
KB said it sees 2022 revenues in the region of $7.2 billion to $7.6 billion, based on an average home price of around $495,000, thanks in part to a backflow of nearly 12,000 homes at a solid first quarter order book.
We underestimated the degree to which the Omicron variant would exacerbate and already constrained supply chain and workforce across our trade partners, municipalities, utility companies and even our own employees," CEO Jeff Mezger told investors on a conference call late Wednesday. "While we take responsibility for our deliveries being below our prior expectations, at the same time, we acknowledge that the variant was a significant contributing factor."
"Our team has adapted to the changing conditions, resequencing construction when necessary," he added. "We continue to be proactive to the extent possible to mitigate the impact of these issues going forward and are committed to regaining our previous construction efficiency over time."
KB Home shares were marked 3.9% lower in early trading Thursday to at $34.62 each, a move that would extend the stock's year-to-date decline to around 19.7%.
The group's weaker outlook reflects near-term cracks in the U.S. housing market, where the Federal Reserve's recent inflation fight has boosted domestic mortgage rates to the highest levels in more than two years.
At the same time, supply chain disruptions, lumber prices and wage pressures have created a supply/demand imbalance that continues to boost new home prices.
The mix of higher rates and more expensive homes lead to a weaker-than-expected tally for new home sales in February, which fell 2% to a seasonally-adjusted annual rate of 772,000 units, as the median price rose 10.7% from last year to $400,600.
"With mortgage rates now at 4.5%, compared to rates at or below 3% not that long ago, it is no surprise that refinance volume has dropped by more than 50% compared to this time last year," said Mike Fratantoni, chief Economist for the Mortgage Bankers Association. "Our new March forecast expects mortgage rates to continue to trend higher through the course of 2022."
