KB Home 1Q16 Earnings Call Notes

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Jeff Mezger

Encouraged by the traffic levels and steady demand

“While it is still early in the spring selling season, we are encouraged by the traffic levels and steady demand we are seeing and are optimistic as we continue to build backlog in support of our delivery targets for the latter part of this year.”

Once again seeing demand move to inland areas in CA

“On a regional basis, California demand remained strong in the first quarter, particularly in the coastal regions where supply is very limited and with prices continuing to climb along the coast, we are once again seeing demand move to the inland areas as well.”

Given softness in Houston, it speaks to the strength of the overall region that comps were favorable

“with the softness in Houston and the fact the region continues to have a favorable sales comp each quarter, it speaks to the strength of the overall region and we are actually encouraged with the sales in Houston. ”

Still have some cost pressures on the labor side, but I think the worst of it is over

“The pressure is more on the cost side, the pressure is more on labor than it is material, right now and there definitely still is a shortage of labor and it varies around the system, there is different shortages in each city. But, it starts on the left with land development subs, we’re short a year ago and then it works through the framing and concrete and into the finished sub through the year. I think the worst of it’s over. It was pretty tight and we had a lot of cost pressures in the fourth quarter, there is still out there but they don’t seem as impactful as they were in the fourth quarter. So we will continue to sort through things and we think it’s getting better right now in the labor front.”

Nowhere near a bubble price in SF

“I don’t think you are anywhere near a bubble price, certainly not at the price points we are playing out. Had stay, but $1.5 million is an affordable in Bay area right now or the City of San Francisco, I’d say. So, I think you’ll see the price come here due to mix this year not that the market is letting us raise prices 6% to 8%. I don’t think we are seeing that right now.”

Didn’t see any impact from Wall Street volatility

“We didn’t see that at all, as I shared, we ended February with some good momentum and that’s the month that there was all the volatility in the marketplace. And I think if you look at a couple we are both gainfully employed and you now a child and you have the need to get out of your apartment and move into a home. You are not worried about Wall Street volatility you are worried about the second bedroom or third bedroom that you need and on the street, out on main street the consumer right now is favorably looking at home ownership.”