Home builder KB Home (KBH) on Friday reported a narrower loss for the third quarter, helped by lower expenses and cancellation rate as well as an increase in net orders. Revenues, however, declined from the previous year due to a drop in houses delivered and average selling price. Looking ahead, the company said the market ''remains in a transition where it will likely be some time before we see meaningful improvement in the economic conditions that are essential to our industry's future growth.''
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.
Net loss for the quarter narrowed to $66.05 million or $0.87 per share from $144.75 million or $1.87 per share in the prior year. The latest results included pretax, non-cash charges of $47.7 million for inventory and joint venture impairments and the abandonment of land option contracts. In the previous year, results included pretax, non-cash charges of $82.2 million for inventory and joint venture impairments.
On average, 16 analysts polled by Thomson Reuters expected the company to report a loss of $0.58 per share for the quarter. Analysts' estimates typically exclude special items.
Revenues for the quarter declined to $458.45 million from $681.61 million in the previous year, as housing revenues dropped due to a 20% decrease in homes delivered and a 15% decline in the average selling price, compared to the previous year. Analysts had estimated quarterly revenues of $458.90 million.
In Home Building, revenues dropped to $456.35 million from $679.12 million in the prior year. Revenues from Housing in the just concluded period was $454.21 million, while Land revenues were $2.14 million. Revenues at Financial Services slipped to $2.10 million from $2.50 million.
Costs and expenses declined to $498.45 million from $786.94 million in the previous year. Selling, general and administrative expenses totaled $83.9 million in the third quarter of 2009, down from $133.2 million in the year-earlier period. Cancellation rate as a percentage of gross orders improved to 27% from 51% in the third quarter of 2008.
Net orders increased 62% to 2,158 from 1,329 in the third quarter of 2008, with each of the company's geographic regions experiencing year-over-year net order growth. The company attributed the growth in net order to the new product line, The Open Series, and a lower cancellation rate.
The company delivered 2,240 homes in the current quarter, down 20% from 2,788 homes delivered in the year-earlier quarter. Average sales price declined to $202,800 from $239,700 in the prior year.
Backlog homes at the end of August 31, 2009 was 3,722 with a backlog value of $734,094, compared to 4,774, having a backlog value of $1.13 million at the end of August 31, 2008.
On September 10, Credit Suisse raised its fiscal 2009 loss per share estimates for the company to $2.85 from $3.10 and increased its price target for the company's stock to $19 from $17, citing that better demand is leading to more stable pricing. In a client note, the brokerage said, ''Our August Survey of Real Estate Agents showed continued strength at the low end, KB Home's niche, with pricing showing signs of stabilization in many key markets on low end homes. We think this will lead to stable/higher margins in the coming quarters and result in lower impairments than we had previously anticipated.''
According to the brokerage, the company remains well positioned to capitalize on improving demand. As demand remains strongest at the entry-level, the firm continues to see KB Home as the best positioned homebuilder to capture this demand with its Open Series homes. Additionally, competition from cash-wielding investors has led many owner-occupant first-time buyers to look at new homes. Due to these factors, Credit Suisse expects orders to increase 56% year-over-year in the third quarter and up 58% in the fourth quarter.
In June, KB Home reported a narrower loss for the second quarter, reflecting a significant reduction in impairment charges from last year. Quarterly revenues dropped 40% on lower housing revenues due to reductions in home deliveries and average selling price. Net loss totaled $78.40 million or $1.03 per share, compared to a net loss of $256 million or $3.30 per share in the prior year quarter. Revenues for the latest second quarter were $384.50 million, in comparison with $639.10 million in the comparable quarter last year.
For the first three quarters of the year, net loss narrowed to $202.50 million or $2.64 per share from $668.85 million or $8.63 per share in the same period last year. Revenues slumped to $1.150 billion from $2.114 billion in the same period last year.
The housing sector is one of the worst-affected by the subprime collapse and the credit crunch. With unemployment levels remaining high and loans becoming hard to come by, house purchases have become fewer. Added to this is the threat from discounted foreclosed homes.
A report released by the National Association of Realtors, or NAR, on Thursday showed that existing home sales dropped unexpectedly in August, after increasing in each of the four previous months. The report showed that existing home sales fell 2.7% to an annual rate of 5.10 million units in August from a 5.24 million unit rate in July. The decrease came as a surprise to economists, who had expected existing home sales to increase to a 5.35 million unit rate. Despite the monthly decrease, NAR noted that existing home sales remain up 3.4% compared to a 4.93 million unit rate in August of 2008.
While reporting the second-quarter results, the company had said, "Declining home prices, historically low interest rates and government stimulus programs, such as the $8,000 federal tax credit and the $10,000 California state tax credit has created unique purchasing opportunities and made it more compelling for homebuyers to enter the market. Job market weakness and tight mortgage lending standards continue to restrain demand, yet consumer confidence appears to be growing."
Jeff Mezger, president and chief executive officer of the company, said today, ''The housing market overall remains in a transition where it will likely be some time before we see meaningful improvement in the economic conditions that are essential to our industry's future growth. While tentative indications are that some negative economic trends are slowing or leveling out to varying degrees in certain markets, the ongoing impact of and the potential for increased foreclosures and mortgage delinquencies, higher unemployment, tighter credit standards, and relatively weak consumer confidence make the timing and extent of a sustained rebound still uncertain."
The federal tax credit of up to $8,000 for first-time homebuyers is scheduled to end on November 30. Homebuilders are pressuring lawmakers to extend the deadline, as it has supported home sales. The NAR report showed that total housing inventories fell 10.8% to 3.62 million existing homes available for sale at the end of August.
Among others in the industry, Lennar Corp. (LEN, LEN.B) Monday reported a wider loss for the third quarter, hurt by write-downs and charges and a sharp decline in revenues, reflecting a decrease in the number of home deliveries and average selling price in the quarter. The company's third-quarter net loss was $171.61 million or $0.97 per share, compared with a net loss of $88.96 million or $0.56 per share, in the same period of fiscal 2008. The company reported quarterly total revenues of $720.73 million, down from $1.11 billion in the prior-year quarter.
KBH is currently trading at $17.66, down $0.88 or 4.75%, on 1.04 million shares. For the past year, the stock traded in the range of $6.90-$21.73.
For comments and feedback: editorial@rttnews.com