Home builder KB Home (KBH) on Tuesday reported a profit for the fourth quarter, compared to loss in the year-ago period. The results for the latest quarter were aided by a tax benefit, primarily related to recently enacted tax legislation that allows the company to offset past losses.
Revenues, however, declined 27% from the previous year due to a drop in houses delivered and average selling price.
The company's net orders for the quarter increased, while cancellation rates declined, but those results were worse than in the preceding third quarter.
The Los Angeles, California-based company builds various types of homes, including attached and detached single-family homes, townhomes, and condominiums. It also offers mortgage services in a joint venture with Countrywide KB Home Loans.
KB Home's net income for the fourth quarter was $100.72 million or $1.31 per share, compared to net loss of $307.28 million or $3.96 per share in the prior-year quarter. On average, fourteen analysts polled by Thomson Reuters expected the company to report loss of $0.42 per share for the quarter. Analysts' estimates typically exclude special items.
The latest quarter's results include an income tax benefit of $191.7 million primarily related to recently enacted tax legislation that extended the permitted carryback period for offsetting certain net operating losses against earnings from two years to five years. The company said it filed for a federal tax refund of $190.7 million which is expected to be received during the first quarter of 2010.
On a pretax basis, the company posted a loss of $91.0 million for the fourth quarter, mainly due to noncash charges of $77.2 million for inventory and joint venture impairments and the abandonment of land option contracts. In the prior-year quarter, the company's pretax loss was $293.0 million, largely due to noncash charges of $265.9 million for inventory and joint venture impairments and land option contract abandonments, and $43.4 million for goodwill impairment.
Revenues for the latest quarter declined 27% to $674.57 million from $919.04 million in the previous-year quarter, primarily due to lower housing revenues that were partly offset by higher revenues from land sales. Analysts had a consensus revenue estimate for the quarter of $577.54 million.
Jeffrey Mezger, president and chief executive officer of KB Home, said, "KB Home's 2009 fiscal year culminated with a solid fourth quarter performance. We substantially reduced our pretax loss from the prior year, expanded our housing gross margin for the fifth straight quarter, and generated positive operating cash flows that increased our cash balance at year end, further strengthening our overall financial position.
Mezger added, "In addition, we view the growth in our fourth quarter net orders as evidence that we are continuing to attract and meet the demands of today's homebuyers, particularly those in our core first-time buyer segment."
In the preceding third quarter, KB Home's net orders increased 62%, with each of the company's geographic regions experiencing year-over-year net order growth. The company had reported a narrower loss for the third quarter, helped by lower expenses and cancellation rate as well as an increase in net orders. Net loss for the quarter was $66.05 million or $0.87 per share, compared with $144.75 million or $1.87 per share a year ago. Cancellation rate as a percentage of gross orders improved to 27% from 51% in the third quarter of 2008.
Amongst KB Home's rivals, DR Horton Inc. (DHI) has recently reported a narrower net loss for the fourth quarter, helped by fewer charges. The company's net loss for the quarter was $231.9 million or $0.73 per share, compared to net loss of $799.9 million or $2.53 per share in the year-ago quarter. Quarterly homebuilding revenues dropped 42% year-over-year to $1.01 billion, reflecting lower home sales amid challenging market conditions. However, the company's net sales orders were up 26% from last year. Another peer, Lennar Corp. (LEN,LEN.B) last week said it turned to a profit in the fourth quarter compared to a heavy loss last year, as it recorded an income tax benefit in the period. The Miami, Florida-based company's net earnings for the quarter were $35.57 million or $0.19 per share, compared to net loss of $810.99 million or $5.12 per share in the previous year. Lennar's total revenues declined 29% in the fourth quarter to $913.74 million, due to lower home deliveries and average selling prices. However, new orders were up 3% in the quarter. Lennar believes that it would return to profitability in fiscal year 2010.
In KB Home's Home Building segment, revenues for the fourth quarter dropped to $671.40 million from $915.65 million in the prior-year quarter. Of this, housing revenues dropped 32% to $618.7 million from $908.5 million in the year-ago period, as the number of homes delivered fell 22% on a year-over-year basis to 3,042 and the average selling price declined 12% over the same period to $203,400. Land sale revenues rose to $52.7 million from $7.1 million in the year-ago period. Financial Services revenues for the quarter declined to $3.17 million from $3.39 million a year ago.
The company's costs and expenses for the quarter declined to $752.95 million from $1.16 billion in the previous year. Selling, general and administrative expenses for the quarter totaled $85.4 million, down 30% from $121.1 million in the year-ago period.
Company-wide net orders for the quarter increased 12% to 1,446 from 1,296 in the year-ago period, primarily due to a decrease in the company's cancellation rate as a percentage of gross orders to 31% from 46% a year ago.
KB Home's backlog at November 30, 2009 totaled 2,126 homes, representing potential future housing revenues of about $422.5 million. This compares to backlog of 2,269 homes at November 30, 2008, representing future housing revenues of about $521.4 million.
For fiscal year 2009, KB Home's net loss narrowed to $101.78 million or $1.33 per share from $976.1 million or $12.59 per share in the prior year. Analysts expected the company to report loss of $3.07 per share for the year. The results for the year include pretax, noncash charges of $206.7 million for inventory and joint venture impairments and land option contract abandonments as well as an income tax benefit of $209.4 million.
The previous year's results include pretax, noncash charges of $748.6 million for inventory and joint venture impairments and land option contract abandonments, as well as $68.0 million for goodwill impairments. The prior year's results also include a $355.9 million after-tax valuation charge against the net deferred tax assets generated during the year.
Total revenues for the year fell 40% to $1.82 billion from $3.03 billion a year ago. Analysts expected the company to report revenues of $1.74 billion for the year.
The decrease in revenues for the year was mainly due to lower housing revenues, which fell 40% to $1.76 billion from $2.94 billion in the prior year.
For the year ended November 30, 2009, KB Home delivered 8,488 homes at an average price of $207,100, compared to 12,438 homes delivered at an average price of $236,400 in the prior year.
The company ended fiscal year 2009 with $1.29 billion of cash and cash equivalents and restricted cash. The company's debt balance as at November 30, 2009 was $1.82 billion, down from $1.94 billion at fiscal year-end 2008, largely due to the redemption of public debt during 2009. The company ended fiscal 2009 with no cash borrowings outstanding under its unsecured revolving credit facility.
Mezger said, "Looking forward into 2010, there are indications that housing market conditions may be stabilizing in some regions, reflecting, among other things, relatively high levels of affordability. This is tempered, however, and could ultimately be undermined, by persistent economic weakness and unemployment, changes in federal government monetary and fiscal policies and programs, and by the impact of rising foreclosures and mortgage loan delinquencies."
Market conditions in the homebuilding sector, which was the worst-affected by the sub-prime collapse and the credit crunch, are still challenging, characterized by higher foreclosures, growing inventory levels and enduring high unemployment levels.
According to RealtyTrac, an online marketplace for foreclosure properties, foreclosure filings for the month of November increased 18% from the previous year, while it declined 8% from the last month. Nevada, Florida and California posted top state foreclosure rates in November.
In October, foreclosure filings were up about 19% from last year, but down 3% sequentially. RealtyTrac's Chief Executive Officer James Saccacio said a full recovery would come only when unemployment recedes to normal, healthy levels and when availability of credit reaches a more rational balance between the extremes of the past few years.
Meanwhile, homebuilders have seen a rise in sales orders in recent quarters, even though in a slow pace, helped by declining home prices, historically low interest rates and government stimulus programs. The federal tax credit of up to $8,000 for first-time home buyers and the California state tax credit of $10,000 have created unique purchasing opportunities and made it more compelling for home buyers to enter the market.
The federal tax credit was scheduled to end on December 1, 2009. The government has extended it to run through July 1, 2010, and expanded the scheme to include people with higher incomes and who want to trade up into new homes.
In December, brokerage Credit Suisse upgraded KB Home shares to "Outperform" from "Neutral", and increased its price target to $18 from $17. Analyst Oppenheim attributed the upgrade to tax refund, more attractive valuation, and a possible improvement in orders in Spring. The analyst expects order growth to begin accelerating during the second quarter of 2010.
In Tuesday's regular trading session, KBH is trading at $15.55, down $0.83 or 5.07% on a volume of 0.23 million shares. In the past 52 weeks, the stock has been trading in a range of $7.85-$20.70.
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