Homebuilder KB Home Posts $268 Million Loss in Q1 2008
March 28, 2008 - KB Home swung to a fiscal first-quarter loss on charges related to write-downs and the abandonment of certain contracts, as the housing downturn and credit crisis continued to take their toll on the residential builder.
President and Chief Executive Jeffrey Mezger offered a downbeat outlook, saying it will “likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve.”
For the quarter ended Feb. 29, KB Home — one of the nation’s largest home builders — reported a net loss of $268.2 million, or $3.47 a share, compared with prior-year net income of $27.5 million, or 34 cents a share.
The latest results include $223.9 million in inventory and joint-venture write-downs and the abandonment of certain land-option contracts, and a $100 million deferred tax-asset charge. To qualify for deferred tax assets, a company must be reasonably confident it will have taxable income.
Revenue dropped 43% to $794.2 million.
The mean estimates of analysts polled by Thomson Financial were for a loss of $1.17 a share on $806 million in revenue.
New home deliveries fell 43% to 2,928. The average selling price dropped 7.2% to $248,200, largely due to decreases in the West Coast and Southwest regions.
Net orders plunged 75% to 1,449, reflecting a lower community count resulting from the KB’s decision to reduce inventory in light of market conditions. The company’s cancellation rate was 53%, down from 58% in the prior quarter, but up from 34% in the year-earlier quarter.
Excluding charges, housing gross margin fell to 9% from 15.9%.
“Our industry continues to confront a growing oversupply of new and resale homes, tight mortgage lending conditions and a highly competitive pricing environment,” said Mr. Mezger.
He added, “Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand.” Mr. Mezger noted KB doesn’t see “meaningful improvement” in near-term conditions, but “we remain confident that favorable demographics and continued household growth will generate strong, long-term demand for housing.”
As builders have been battling double-digit cancellation rates and stubbornly high inventory amid the housing and credit downturn, KB has been focused on its exclusive Disney line of furnishings, which company executives are hoping will work magic on its bottom line. And to stop contracted buyers from getting spooked by falling home prices, the company last month began offering a price protection incentive — promising contracted buyers a lower price if prices of comparable homes drop before closing — in a bid to improve its margins and cancellation rates.
KB Home has also been trying to draw environmentally conscious buyers with its inclusion this year of appliances awarded the federal Energy Star rating for high-energy efficiency as standard in homes, even though they cost more than those without the designation. But all the incentives may not be enough, as more buyers are have trouble securing mortgages and selling existing homes.
Wednesday, the Commerce Department said new-home sales slid 1.8% in February to to a seasonally adjusted annual rate of 590,000 — the lowest mark in 13 years — while prices also declined. And last week the Commerce Department said permits for new housing construction, a barometer of future building activity, fell 7.8% in February to the lowest level in 16 years.
KB Home Posts $268 Million Loss, Sees No Near-Term Improvement
By DONNA KARDOS | Wall Street Journal