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Strategies & Market Trends : Real estate and credit file cabinet - please read rules befo

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From: Ramsey Su	3/23/2006 12:18:26 PM
	of 13

KBH - Feb qtr earnings and conf call notes My conclusion based on below: KBH is not offering incentives despite competitors' actions. They believe it is very limited and incentives were more like ploy to attract more traffic. Everything still "normal" since they already closed and only 7000 delieveries needed to make numbers for yr. Need to watch their continuous share repurchase at 2 million a quarter. Need to watch their margins because they are basically assuming no pressure. ================================== EPS $2.02 beating $1.97 consensus. 2 million repurchase this qtr, 2 million previous qtr. 8 million still authorized. Will cov 179k lots, 53% under option contract. 450 unsold inventory. 480 communities. Two coasts off the highs. Center of country stable. Texas is better today than yr ago. 7600 deliveries needed to meet earnings this yr. Cancellation reason - buyers not qualified but are seeing some after loan approval. Something they have not seen before. Most cancellations are land sales not finished homes? Not region specific. KB not focusing on incentive because of their good quality home? They think incentive game hurts everyone so they are trying not to do so and would like to see competitorsd stop. Ivy asked if no incentive, the infrastructure is geared for higher volume, with less orders, then work crew idled? KB said cost is 90% variable and 10% fixed, counting land as variable. (really?) Incentives - they do offer some but not broadbased incentives. When offered, they claim they are offering less than 1% incentives. Ivy asked how do they expect to meet sales target when competitors are offering the moon? KB said incentives are typically bait and switch by competitors. However, if general market goes down, then they would have to adjust also. Operating margins - Ivy asked why margins go down if price the same. KB answered that would be due to higher land cost basis. Earnings guidance based on margins holding. They do no accept contingent sales. Filtering process before building - need a finalized loan approval. So canc rate is usually before home building starts. Texas and Denver both improving. Southeast, not Florida, all good. Florida improving, Cal and NV both coming back. Wow, no weakness? Feb orders were flat yoy. Still believes inventory below norm for industry. (seems to contradict with all data right now with increases of immediate move-ins everywhere)

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