KB Home’s 3rd-quarter loss narrows as revenue rises partly on higher average selling prices

KB Home 3rd-quarter loss narrows as revenue rises

LOS ANGELES — KB Home said Friday it narrowed its fiscal third-quarter loss, as the homebuilder booked fewer write-downs and higher average selling prices helped boost revenue.

But the company’s backlog, which represents future housing revenue, dropped, and net orders fell 39 percent, as demand slowed after federal homebuyer tax credits expired in April.

President and CEO Jeffrey Mezger said orders in June — traditionally one of the builder’s best-selling months — fell by half versus the same month last year. Orders gradually improved as the summer unfolded, but they remained well below prior-year levels.

“While we have seen improvement in our net orders over the past few months, sales remain soft and the weak economy continues to be a major impediment to any housing recovery,” Mezger said.

The economic downturn, high unemployment and tight credit continue to keep many from buying homes, even with some of the lowest mortgage rates in decades. Demand for homes plunged to historic lows this summer following the end of the homebuyer tax credits.

The Commerce Department said Friday that new home sales in August were unchanged from July, but declined 29 percent from the same month last year.

Builders also face competition from a glut of unsold homes. At the current sales pace, it would take about a year to exhaust the supply of previously occupied homes on the market. Homes lost to foreclosure, which are expected to eclipse the 1 million mark this year, could further add to that glut, and put pressure on builders to lower prices.

So far, KB has been able to hold the line on prices overall, but Mezger noted that could change.

“Our primary goal right now is to hold margins,” he said. “On a community specific basis, we may need to get more aggressive as the quarter unfolds, if the markets don’t improve …”

KB Home said it lost $1.4 million, or 2 cents a share, in the three months ended Aug. 31. That compares with a loss of $66 million, or 87 cents a share, a year earlier.

The quarter’s results included $3.3 million in inventory impairment and land option contract abandonment charges. This is considerably lower than the $47.7 million for similar charges in the prior-year period.

Revenue rose 9 percent to $501 million, the first year-over-year increase in almost four years,

The performance was much better than the loss of 15 cents per share and revenue of $477.8 million that analysts polled by Thomson Reuters expected. These estimates usually take out one-time items.

The builder’s shares rose 40 cents, or 3.4 percent, to $12.11.

KB Home, based in Los Angeles, builds homes to order for entry level, move-up buyers and seniors in 11 states and Washington, D.C.

It closed the quarter with a backlog of 2,169 homes, indicating potential future housing revenue of about $455.3 million. This is below the prior-year’s total, which was 3,722 homes with potential revenue of approximately $734.1 million.

On the order front, KB faced a tough comparison to the third quarter last year, when it posted a 62 percent jump in contracts. Net orders fell to 1,314 compared with 2,158 a year earlier.

Still, the builder’s average selling price was a bright spot, climbing 6 percent to $214,200. And the number of homes delivered increased 4 percent to 2,320.

The company’s cancellation rate was slightly higher at 21 percent. It was 20 percent the year before.

Ticonderoga Securities analyst Stephen East said in a research note that the builder’s orders were “a disaster,” but noted the company’s average selling price suggests KB “is no longer in the business of driving volumes, but instead, in the business of driving profits.”

Online:

KB Home: www.kbhome.com