KB Home (NYSE:KBH) to Get Hammered on Revenue

While cost reductions could be a positive factor for KB Home (NYSE:KBH) heading into 2011, there is little else to aid their narrative, as revenue is expected to get crushed going forward.

Ticonderoga said, "Unit Orders we forecast will decline 11% to 1,289 YoY, but only 2% sequentially. The improved sequential Order stream is likely driven by three issues. First, community growth is picking up speed. Second, management has decided to more aggressively clear out specs. Third, NHS (not seasonally adjusted) in the West, KBH’s strongest geography, were flat sequentially, likely boosting KBH’s Orders. Orders ASP should be up 3.4% due to mix.

"Revenue will get hit hard as the significantly reduced Backlog starts flowing through the Income Statement. We expect Revenues to fall 36% YoY to $432M. Unit Closings should fall 28% to 2,180, while Closings ASP should fall 3.7%. We forecast the Backlog Conversion Rate to be a strong 100% as the Specs get cleared out.

"We forecast the Operating Margin to be a negative 2.1%, as spec clearing and low volumes outweigh cost controls. We believe the Gross Margin will decline 140 bps sequentially to 16.8%, with some slight downside risk. SG&A costs as a percentage of sales should fall 50 bps sequentially to 15.3%, despite lower revenues, while jumping 253 bps YoY. We believe there could be better news at the SG&A line as cost pullouts could drop dollars as fast as revenues are falling."

Ticonderoga maintains a "Buy' on KB Home, which closed Monday at $14.22, gaining $0.73, or 5.41 percent. Ticonderoga has a price target of $16 on them.