KB Home Reports Loss as Real Estate Slump Hurts House Sales
June 27 2008 - KB Home, the Los Angeles-based homebuilder founded by Eli Broad, reported its fifth straight quarterly loss as rising mortgage rates and falling prices reduced demand for homes.
The fiscal second-quarter net loss widened to $255.9 million, or $3.30 a share, from $148.7 million, or $1.93, a year earlier. Revenue dropped 55 percent to $639.1 million, the Los Angeles- based company said today in a statement. The shares fell as much as 3.5 percent in trading before the open of U.S. markets after the loss was wider than analysts estimated.
Sales of new U.S. houses fell 2.5 percent in May to a 512,000 annual pace, the second-lowest level since 1991, the Commerce Department said earlier this week. Home sales are being hurt by declining property values, rising mortgage rates and stricter borrowing rules.
“Housing market conditions remain difficult for the homebuilding industry, with inventories of unsold homes expanding as foreclosures rise to record highs, and consumer confidence continuing to deteriorate amid signs of weakness in the general economy,” Jeffrey Mezger, KB Home’s chief executive officer, said in the statement.
KB Home Projected Loss Per Share
KB Home was projected to report a net loss of $1 a share for the quarter ended May 31, according to average estimate of 10 analysts surveyed by Bloomberg. It’s the fifth-largest U.S. homebuilder by revenue and was founded in 1957 by Broad and Donald Kaufman to sell homes to World War II veterans starting families.
“High inventory and modest traffic remain the storm clouds” for KB Home and other homebuilders, Credit Suisse analysts Daniel Oppenheim and Michael Dahl said in a report this week. “The 11.2- month supply of homes for sale should lead to continued pressure on prices.”
Credit Suisse rates KB Home “outperform.”
In the second quarter, KB Home’s average sales price fell 17 percent to $226,600. The company operates in 13 U.S. states, including California, Florida, Nevada and Arizona. Those four states account for 69 percent of KB Home’s sales, according to Credit Suisse.
Pre-Market Decline
The company issued its results before the start of regular U.S. trading. KB Home fell 58 cents, or 3.2 percent, to $17.55 at 8:27 a.m. in pre-market trading. The shares fell yesterday $1.06, or 5.5 percent, to $18.13 in New York Stock Exchange composite trading. They’ve dropped 54 percent in the past 12 months through yesterday, compared with a 48 percent decline in the Standard & Poor’s Supercomposite Homebuilding Index.
Orders fell 42 percent to 4,200 homes and the number of homes delivered tumbled 41 percent to 2,810.
KB Home recorded a total of $300 million in expenses, including $176.5 million to write down the value of land and joint ventures and to walk away from options on land it doesn’t plan to buy. The total also included a $99 million tax-related charge.
Builders are reducing prices to cut the inventory of unsold homes. The number of new homes in the U.S. completed and waiting to be sold at the end of May dropped to 182,000, a sign home construction companies are making progress clearing inventory.
KB Home Backlog Declined
The value of the company’s backlog, or homes under contract and not yet sold, fell 61 percent to $1.47 billion at the end of May compared with the same period a year earlier.
Sales of previously owned homes in the U.S. rose in May from the lowest level in at least nine years as a slide in prices lured some buyers into the market. Resales increased 2 percent to a 4.99 million annual rate higher than forecast, from a 4.89 million pace in April, the National Association of Realtors said yesterday.
The S&P/Case-Shiller index showed earlier this week that home prices in 20 U.S. metropolitan areas fell 15.3 percent from a year earlier in April, the steepest decline since the group began keeping records in 2001.
Lennar Corp., the second-largest U.S. homebuilder, yesterday reported its fifth straight quarterly loss and said the housing market has yet to see the worst of the slump.
The Miami-based company had a fiscal second-quarter net loss of $121 million, or 76 cents a share. Analysts projected a loss of 68 cents. Revenue fell 61 percent to $1.1 billion.
KB Home Reports Loss as Slump Hurts U.S. House Sales
by Daniel Taub | Bloomberg