Solid Business Performances Weren't Enough for These 2 Stocks on Thursday

Investors weren't happy with what the Federal Reserve did on Wednesday, and even after share prices gave up ground in the last couple of hours in the previous trading session, market participants were even more prone to be sour on stocks on Thursday. Declines for the Nasdaq Composite (^IXIC 2.02%) approached 2%, while both the Dow Jones Industrial Average (^DJI 0.40%) and the S&P 500 (^GSPC 1.02%) were down more than 1% on the day.

Data source: Yahoo! Finance.

With the market suffering from a bad attitude, even companies that gave their investors some good news didn't necessarily see their share prices rise Thursday. Both KB Home (KBH 2.07%) and Darden Restaurants (DRI -0.28%) released their latest financial results, but the reception they got from shareholders didn't seem nearly as positive as the raw numbers would suggest. Here's a closer look at what KB Home and Darden told their investors and why it wasn't enough to spur some optimism about their respective futures.

KB Home fights a tough housing market

Shares of KB Home fell by more than 4% on Thursday. The decline came despite fiscal third-quarter financial results that in many ways painted a brighter picture of the homebuilder in its efforts to fight against difficult industry conditions.

KB Home's numbers certainly reflected the tough environment facing prospective homebuyers right now. For the period, which  ended Aug. 31, revenue fell 13% year over year to $1.59 billion as the number of homes that KB Home delivered dropped by 7% to 3,375. The average selling price was also lower, falling by more than $40,000 to $466,300. Operating income came close to getting cut in half, due in part to higher construction costs and in part to buyers demanding greater concessions in order to close sales. Net income dropped by more than 40% to $150 million, working out to $1.80 per share.

Yet KB Home saw several signs of potentially better conditions ahead. Net orders in the fiscal third quarter jumped by more than 50% to 3,097, with those orders having a value of $1.51 billion. Cancellation rates have also dropped, and even though mortgage rates remained high, demand seems strong.

Still, KB Home's backlog of home orders was down by more than a third to just over 7,000, showing some of the uncertainty in the industry. Until interest rates stabilize, it's going to be hard for homebuilders like KB Home to predict exactly how the housing market will behave.

Darden fears a consumer pullback

Shares of Darden Restaurants dropped by almost 3% on Thursday. The parent of Olive Garden and other restaurant concepts reported fiscal first-quarter 2024 results that showed considerable strength.

For the period, which ended Aug. 27, revenue at Darden climbed nearly 12% year over year to $2.7 billion, and same-restaurant sales were up about 5% from year-ago levels. Both Olive Garden and LongHorn Steakhouse did particularly well, making up for weakness at Darden's fine dining chains.

Darden has been aggressive in a tough environment, making the strategic decision to acquire Ruth's Chris Steak House and its 77 company-owned restaurant locations. As CEO Rick Cardenas sees it, the move is all part of a broader strategy designed to grow Darden's market share, strengthen its overall margin performance, and make investments to grow its business.

Moreover, Darden still thinks fiscal 2024 will be good for the company, projecting earnings per share of between $8.55 and $8.85. Despite concerns that consumers might get tapped out and be unable to afford to eat out as much, Darden seems optimistic that it will be able to weather any storm and come out the other side looking appetizing as an investment.