KB Home Lowers Earnings Forecast

Los Angeles, CA, September 7, 2006--KB Home cut its 2006 profit forecast citing weaker than expected demand for new homes amid a slowing housing market. The company said it expects an earnings decline and third-quarter profit below Wall Street targets. KB Home now sees full-year earnings of $8 to $8.50 per share, down from a previous forecast of $10 per share. Early in the year, the company issued a projection of $11.25. In fiscal 2005, the company earned $9.53 per share. Analysts surveyed by Thomson Financial forecast full-year earnings of $9.61 per share. "Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years," said Bruce Karatz, chairman and chief executive. For the third quarter, KB Home calls for earnings of $1.85 to $1.95 per share, below analysts' consensus target of $2.31 a share. The company said preliminary net orders for the quarter were down 43 percent from the prior year to 5,989, as cancellation rates have shot higher. Gross unit orders and traffic to new home communities each slid 11 percent in the third period. In response to the housing market slowdown, the company has set out to cut costs, including curtailing land acquisitions and has also sold off some of its non-critical land holdings in a bid to focus more on its core homebuilding business. Last month, KB Home sold its minority stake in a planned 2,000-acre housing development in Southern California. Meanwhile, the company also reported Wednesday that no conclusions have been reached by an audit committee formed by its board of directors to review stock option grants given to Karatz.