UPDATE 5-KB Home net orders fall, shares drop

Fri Mar 23, 2012 5:59pm EDT

* Q1 loss $0.59/shr vs consensus loss $0.24/shr

* Revenue $254.6 mln vs forecast $337.7 mln

* Net orders fall 8 pct, cancellations rise

* Shares fall 8.5 pct to lowest since early Feb.

By Michelle Conlin and Megha Mandavia

March 23 (Reuters) - U.S. homebuilder KB Home, known for its green homes, partnership with Martha Stewart and giveaways on TV shows, posted a surprise quarterly loss, hurt by smaller margins and lower sales as skittish consumers canceled orders for new homes.

KB shares slid 8.5 percent to close at $10.29, their lowest level in nearly two months.

Until Friday homebuilder stocks had been on a tear, rallying since October as if the housing recovery was firmly in place. Some shares had tripled on expectations that historically low interest rates and low home prices would finally push consumers to buy.

But this has been anything but a normal housing recovery.

"Don't expect this to be a broad-based, rocket-ship recovery," KB Homes Chief Executive Jeff Mezger said on a conference call following its earnings report on Friday. "The overall housing market is better, but this is definitely a localized recovery ... and in some cases, it's a zip-code-by-zip-code recovery."

In cities like Miami and New York, luxury highrises are the subject of ferocious bidding wars. But in the foreclosure-ravaged areas of inland California and Cleveland, signs of a recovery seem to be missing.

KB's disappointing results on Friday mirrored the surprise loss reported last month by homebuilder Toll Brothers, which also saw buyers cancel orders. Toll's results stunned investors.

Mezger blamed the spike in buyer cancellations in part on the sudden announcement in January that KB's preferred mortgage partner, MetLife Home Loans, was shutting down its retail mortgage operations.

Mezger also said the punishing standards used by mortgage providers were creating a troubling trend. Customers show up at KB communities brandishing preapproval letters, but more of them are failing to close on purchases than before.

SOME UPSIDE

It wasn't all bad news for KB. The company is getting massive play on Facebook from its appearance on "The Ellen DeGeneres Show" as it builds a custom home for single mom Lisa Jarmon, who gets to select everything from faucets to flooring in KB Home Studio stores.

All the publicity is giving KB a way to showcase the stores, which are coming online in KB's communities.

KB Home has long been a trailblazer in marketing schemes, including an alliance in 2004 with the ABC Television reality show, "Extreme Makeover: Home Edition."

But the cost of establishing the KB Home Studio division, as well as building Martha Stewart-branded homes and energy efficient houses, is also pressuring margins, some analysts said.

And despite signs of a possible housing recovery, the market remains mired in its worst slump since the Great Depression.

Nearly half of homeowners with mortgages are either in foreclosure, delinquent, owe more on their loan than their house is worth, or have less than 20 percent equity in their home.

That's not to mention the millions of homes - the so-called shadow inventory - that the banks are holding back from overwhelming the market and further depressing prices.

KB's first-quarter net loss was $45.8 million, or 59 cents per share, down from $114.5 million, or $1.49 per share, a year ago. Revenue rose 29 percent to $254.6 million.

Analysts were expecting a loss of 24 cents per share on revenue of $337.7 million, according to Thomson Reuters I/B/E/S.