This week should bring a first glimpse into how the spring selling season is working out for the largest builders in the country with both KB Home and Lennar reporting their first quarter results Tuesday and Wednesday, respectively.
It will be only a glimpse since they will show results through February, the end of the first quarter of the fiscal year for both.
Analysts aren't expecting either to turn a profit. Both managed to eke out positive earnings in the last quarter thanks to tax refunds made possible by the government's short-term extension of the time that corporations can reclaim taxes it paid on profits they made as far back as five years ago against losses in current years. But those resources are likely tapped out.
Analysts' average earnings estimate for KB Home is a loss of $0.42 per share. On average, analysts estimate Lennar's loss will be $0.30 per share.
One key unknown will be whether the extended tax rebate for home buyers is sparking increased demand. Analysts aren't optimistic about that either.
"Given recent anecdotes that the expected improvement in sales hasn't materialized, we're increasingly concerned that too much demand was pulled forward with the initial buyer credit, thereby limiting the benefit from the extension," wrote UBS Investment Bank's David Goldberg in a research note.
January's home sales numbers were likely depressed because of weather, but it's possible that they might have rebounded in February, suggested Ticonderoga Securities analyst Stephen East in a research note. "We expect the demand to increase through March before moderating."
KB Home CEO Jeffrey Mezger has said the company is projecting 2010 sales to be flat with 2009. That said, the company has made a number of moves that it says should make it more profitable.
--It will have more of its popular Open Series homes available for buyers;
--It will be building on land it has recently bought at lower prices, theoretically increasing margins;
--Cycle time is expected to improve; and
--While the company has stopped short of saying it expects to increase the number of spec homes it builds to capitalize on sales from buyers in a hurry to capitalize on the tax refund that is set to expire soon, it is looking into ways to have more homes ready for quick move-in.
Lennar, too, has put its land acquisition program into overdrive, sewing up access to thousands of cheap lots over the past six months and readying itself for a market turnaround.
Last quarter, CEO Stuart Miller was upbeat that the market had begun its stabilization as the number of new sales orders increased for the first time since the first quarter of 2006. But Lennar wasn't counting on home sales alone to boost its bottom line. It said its markets were all operating more efficiently as well. Plus, it has begun to lock in an income stream from its property management acumen. Recently, it announced a deal with the FDIC through its subsidiary Rialto to manage a large portfolio of distressed real estate loans.