KB Home 2Q loss widens on sales slump, charges

KB Home's latest quarterly results capped a week of discouraging trends for the homebuilding sector Friday.

The Los Angeles-based builder reported a larger second-quarter loss and a 55 percent drop in revenue. And the housing slump continued to eat away at the value of its assets, prompting it to book charges to account for the lower value of unsold homes, joint venture deals and land option contracts.

KB also saw sharp declines compared with the year-ago quarter in new orders, home deliveries, average selling price, and the value of its backlog of homes.

The results came a day after Miami-based builder Lennar Corp. reported that it narrowed its second-quarter loss, but saw revenue plunge by 61 percent and new home orders drop by 45 percent compared with the year-ago quarter.

Separate housing reports this week reflected the builders' situation. One showed sales of new, single-family homes slipped 2.5 percent in May, while home prices fell at the sharpest rates ever in April.

"We believe that a meaningful improvement in market conditions will require a sustained decrease in inventory levels, price stabilization, reduced foreclosure rates, and the restoration of consumer confidence in making the home-buying decision," KB Home Chief Executive Jeffrey Mezger said during a conference call with Wall Street analysts Friday.

KB reported a loss of $255.9 million, or $3.30 per share, for the three months ended May 31. A year ago, it lost $148.7 million, or $1.93 per share.

The latest results included a $176.5 million charge to cut the value of its unsold homes and to abandon some land option contracts.

Revenue plunged to $639.1 million from $1.41 billion in the year-ago period. The decline was driven by lower housing and land sale revenues, the builder said.

Analysts surveyed by Thomson Financial were expecting KB to post a loss of 94 cents per share on revenue of $691.3 million. The earnings estimates typically exclude one-time items.

KB shares fell 41 cents, or about 2.3 percent, to $17.72 in trading Friday.

Mezger said weak demand for new homes and falling home prices forced the company to book additional impairment charges during the quarter, hurting the company's operating results.

About 90 percent of KB's impairments and abandonments in the quarter were recorded against assets in California, Arizona, Nevada and Florida - states that have been hardest-hit by foreclosures and falling prices.

The builder, which makes homes to order and has operations in nine states, saw its average selling price tumble 17 percent during the quarter to $226,600.

Despite price declines, home builders are struggling to make sales because many buyers are holding out, expecting home prices to fall further. Others are having trouble obtaining financing.

Lennar CEO Stuart Miller warned Thursday the housing market has yet to hit bottom and ruled out the prospects of a recovery this year.

Builders have tried to respond by downsizing some of their offerings and stepping up incentives and discounts to better compete with preowned and foreclosed homes on the market - at the expense of profit margins.

Gradually, these discounts are helping whittle down builders' inventory of already built, but unsold homes.

The inventory of new homes for sale in the U.S. declined 1.7 percent in May to 453,000 units, which translates into nearly an 11-month supply.

KB showed some signs of building some sales momentum in the second quarter.

While its new orders were down sharply compared with the year-ago period, the builder tripled its orders since the first quarter.

Another plus: KB's order cancellation rate improved during the quarter to 27 percent, down from 34 percent in the year-ago period and 53 percent in the first quarter.

That may suggest some stability returning to the market, Dom Cecere, KB's chief financial officer, told analysts.

Still, any recovery will hinge on the nation's overall economic picture, cautioned Anna Torma, an analyst for Soleil Securities Group Inc.

"The problem is, what to date has been a downturn that's been driven by the speculative housing market and the credit crisis, it could now be exacerbated by an economic slowdown landing on top of it," she said. "If the economy can stabilize even without seeing significant momentum, I think these builders are actually closer than people realize to seeing some signs of stabilization by the end of the year."

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