KB Home sales plunge as housing market worsens
NEW YORK (Reuters) - KB Home posted a wider-than- expected quarterly loss on Thursday on write-downs for land values and 28 percent fewer homes sold, as a swelling supply of new and existing homes and tighter mortgages kept buyers sidelined.
The U.S. housing market has been in a steep decline for nearly two years, hounded by falling prices and sluggish demand.
"At this time, we see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins," KB (KBH.N) Chief Executive Jeffrey Mezger said in a statement.
"Rising foreclosure rates are intensifying the problem of surplus inventory and will likely drive further home-price reductions," he added.
The company, the No. 5 U.S. home builder, reported a net loss of $35.6 million, or 46 cents per share, for the third quarter ended August 31, compared with a year-earlier profit of $153.2 million, or $1.90 per share.
The company posted a loss despite recording a $443 million gain from the sale of KB's 49 percent stake in its French unit, Kaufman & Broad SA.
The loss from continuing operations was $478.6 million, or $6.19 per share, due largely to pretax noncash charges of $690.1 million for writing down the value of land and $107.9 million from goodwill impairment.
Analysts had expected the company to post a loss of 71 cents per share, according to Reuters Estimates. It said that figure compared with a loss of $5.24, a figure it calculated by excluding certain items and including others.
Earlier this week, Lennar Corp (LEN.N), the No. 2 U.S. home builder, posted a net loss of $513.9 million.
Los Angeles-based KB's revenue fell 32 percent to $1.54 billion, the number of sales closed dropped 28 percent to 5,699 and the average selling price declined to $267,700.
"We expect housing industry conditions to continue to worsen through the end of the year and into 2008," said Mezger, repeating the forecast he made to Reuters in July.
CANCELLATIONS
For the just-completed quarter, net orders for new homes, an indicator of future sales, were off 6 percent at 3,907.
"I was kind of surprised to see that their orders were actually down compared to a really bad number last year," said Alex Barron, senior research analyst at Agency Trading Group.
The cancellation rate for the quarter was 50 percent, compared with the prior quarter's 34 percent, reflecting the troubles in the mortgage market, KB said.
A sharp rise in defaults on subprime mortgages, which go to borrowers with checkered credit histories, prompted lenders to tighten requirements, making it difficult for all but those with good credit to get loans.
The U.S. Commerce Department reported on Thursday that sales of new single-family homes in August fell 8.3 percent to their slowest pace in more than seven years.
To navigate through the rough climate, home builders have focused on generating cash and shoring up balance sheets. KB slashed the number of lots it owned or controlled by 55 percent to 83,000 from its peak in the first quarter 2006. It ended the quarter with no borrowings outstanding on its $1.5 billion bank revolving credit and $646 million in cash.
"The balance sheet actually looks a lot better than it did a year ago," Barron said. "I do believe that there are significant impairments yet to come."
KB Home shares were up 32 cents, about 1.3 percent, at $24.41 in late New York Stock Exchange trading, while the benchmark Dow Jones U.S. Home Construction Index .DJUSHB was up 1.8 percent.
(Reporting by Ilaina Jonas)
