KB Home fell the most in almost three years after saying its fiscal first-quarter gross margin will narrow significantly and that it's unlikely to meet its goal of a 20% margin for 2015.
Shares of the Los Angeles-based builder slumped 14% to $14.21 at 1:27 p.m. in New York. It was the biggest decline in intraday trading since March 2012.
"We generated a disappointing fourth-quarter adjusted housing gross margin," Chief Executive Officer Jeffrey Mezger said on a conference call today. "We know that our gross margin will continue to lag the prior-year comp for some time."
KB Home's margins will narrow from a year earlier as the company boosts incentives and reduces prices to spur sales, Mezger said. U.S. builders have struggled to sell new homes amid tight lending standards and low buyer demand in markets such as inland California, Mezger said. Margins also have been squeezed by rising construction and material costs, he said.
"It's certainly disappointing, especially the commentary on forward margins," Megan McGrath, an analyst with MKM Holdings LLC in Stamford, Conn., said in a telephone interview. "It sounds like the higher incentives we started to hear about in the middle of 2014 perhaps got worse, at least for KBH, as the fourth quarter wore on."
KB Home's report reminded investors that land costs are going up for homebuilders as they work their way through lower-priced lots purchased after the housing crash, said Joel Locker, a San Diego-based analyst with FBN Securities Inc.
It was a "wake-up call, where investors say all the estimates for builders are too high for 2015," he said in a phone interview. "Overall, demand is not where it was."
The Standard & Poor's Supercomposite Homebuilding Index fell 3.3%, the most in a month. KB Home had the biggest decline in the index, followed by D.R. Horton Inc., M/I Home Inc. and Meritage Homes Corp.
