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KB Home Posts $255 Million Loss; Shares Slip

Reuters
Friday, 27 Jun 2008 | 10:25 AM ET

KB Home, the No. 5 U.S. home builder, posted a deeper quarterly loss Friday on tumbling revenue as the United States faced its deepest housing slump in decades.

KB Homes
Matt York
KB Homes

KB reported a net loss of $255.9 million, or $3.30 per share, in its second quarter, compared with a loss of $148.7 million, or $1.93 per share, last year.

Factoring out a $98.9 million valuation allowance charge, the loss came to $2.03 per share in the quarter, compared with the average Wall Street loss estimate of 90 cents a share, according to Reuters Estimates.

Revenue plunged by more than one-half, to $639.1 million from $1.41 billion, hurt by a 41 percent decrease in the number of homes sold and a 17 percent decline in average price.

"Persistently poor demand for new homes during the second quarter amplified pricing pressures and diminished asset values in many of our served markets," said Jeffrey Mezger, the company's president and chief executive. "Potential new home buyers remain reluctant to purchase a home."

KB said net new home orders fell 42 percent in the quarter to 4,200.

The result comes a day after No. 2 U.S. home builder Lennar Corp reported a deeper-than-expected loss, saying that it saw no sign that market conditions would improve this year.

KB shares fell $1.05 to $17.08 on the New York Stock Exchange.

Survival Mode

The housing sector has tumbled for three years now, as falling prices and an end to easy credit have made consumers less willing and able to buy homes. The effects of the downturn have rumbled through the U.S. economy, hitting sectors from building products to appliances and spurring fears of a recession.

For homebuilders, the focus has shifted from growth to survival as they seek to ensure their financial futures.

KB reduced its ratio of debt to total capital, net of cash, to 40.2 percent as of the quarter's end on May 31, down from 46.6 percent a year earlier.

"The company is well positioned to successfully navigate through the current housing environment and to capitalize on new opportunities that emerge," Mezger said.

James McCanless, a senior analyst at FTN Midwest Securities, who rates the shares a "buy," said KB is doing a good job of weathering the downturn. He cited a decline in KB's cancellation rate, which declined in the second quarter to 27 percent, down from 53 percent in the first quarter and 34 percent a year ago.

"KB went out and priced homes to the market," McCanless said. "At some point affordability will drive people right back into this market."

Still, he said, that might not come until next spring.

So far this year, the company's shares are down 21 percent, a sharper decline than the 15.5 percent slide of the Dow Jones U.S. home builder index.

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