KB Home Reports First-Quarter 2008 Loss on Land Writedown
March 28 2008 - KB Home, the fifth-largest U.S. homebuilder, reported a wider loss than analysts projected as the housing recession cut sales and led to land writedowns.
The shares fell as much as 6.5 percent after the fiscal first-quarter net loss was $268.2 million, or $3.47 a share, more than twice what analysts expected.
Tighter lending standards and too many unsold homes are constraining demand, delaying any rebound for the home market, Chief Executive Officer Jeffrey Mezger said in a statement today. New home sales declined to their lowest level in 13 years in February as banks adopted tighter lending standards and the inventory of unsold homes remained high. Home prices in 20 U.S. metropolitan areas dropped in January by the most on record.
“The inventory situation for the industry continues to be poor,” said Robert Curran, the lead homebuilding analyst at New York-based Fitch Ratings. “There’s just too much inventory out there.”
Revenue fell 43 percent to $794.2 million and net orders plunged 75 percent to 1,449 homes. The Los Angeles-based company recorded $223.9 million in pretax expenses to write down the value of land, joint ventures and options on property. It also had a $100 million tax-related expense.
In the year-earlier first quarter, KB Home had net income of $27.5 million, or 34 cents a share.
No Improvement
“Our industry continues to confront a growing oversupply of new and resale homes, tight mortgage lending conditions and a highly competitive pricing environment,” Mezger said in the statement. “We do not anticipate meaningful improvement in these conditions in the near term, as it is likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve.”
KB Home was projected to report a loss of $1.33 a share for the quarter ended Feb. 29, according to the average estimate of 10 analysts in a Bloomberg survey.
The shares fell $1.14, or 4.4 percent, to $24.65 at 9:50 a.m. in New York Stock Exchange composite trading. They’ve dropped 43 percent in the 12 months through yesterday and are up 19 percent since Jan. 1.
The number of homes sold tumbled 43 percent in the quarter to 2,928. The value of the company’s backlog, or homes under contract and not yet sold and a sign of future revenue, fell 59 percent to $1.23 billion. The number of homes in backlog tumbled 57 percent to 4,843.
Grim Picture
“With orders continuing to deteriorate and decline like they have, at some point you’ve got to be concerned about the backlog,” John Tomlinson, a director and senior analyst at New York-based Majestic Research, said in an interview. “The overall demand picture right now in the market is very grim.”
Orders tumbled 83 percent in both KB Home’s Southwest region of Arizona, Nevada and New Mexico and its central region of Colorado, Illinois and Texas. KB Home got contracts for the most houses in the quarter in California. Still, orders in California fell 63 percent.
KB Home’s results came a day after Miami-based Lennar Corp., the third-largest builder, reported an $88.2 million net loss for its first fiscal quarter ended Feb. 29. It was Lennar’s fourth straight quarterly loss as revenue plunged and it wrote down more than $100 million worth of land and deposits.
A Standard & Poor’s measure of 15 home construction companies has gained 14 percent this year on expectations interest rate cuts by the Federal Reserve will make mortgages more affordable and prevent the economy from going into recession.
Rate Cuts
The Fed’s seven interest rate cuts since September have reduced borrowing costs by 3 percentage points. The average rate for a 30-year fixed mortgage dropped half a percentage point during that period. Banks are hoarding cash and reluctant to make loans after writing down the value of $180 billion of mortgage rate securities since July.
Builders are reducing prices to clear their inventory of unsold homes. KB Home’s average selling price in the quarter fell 7.2 percent to $248,200. In fiscal 2007, the average price fell 9 percent to $261,600 from the same period a year earlier.
KB Home obtained the most revenue in 2007 from California. It sold homes there at an average price of $433,600, down 11 percent from 2006.
New-home sales dropped 1.8 percent to an annual pace of 590,000 in February, the least since February 1995, the Commerce Department said on March 26. The median price decreased 2.7 percent from a year earlier to $244,100.
The number of new homes for sale at the end of February dropped to 471,000, the fewest since July 2005, indicating that builders are making progress in clearing inventory.
KB Home Reports First-Quarter Loss on Land Writedown
By Brian Louis | Bloomberg