Hurt by the housing turmoil, homebuilder KB Home (KBH) Friday reported a wider loss for the second quarter on charges as well as a 55% decline in total revenues. The company noted that market conditions remain difficult for the homebuilding industry, with inventories of unsold homes expanding as foreclosures rise to record highs.
Lennar Corp. (LEN, LEN.B), the second-largest U.S. homebuilder, reported a narrower loss for the second quarter Thursday, helped by lower expenses. However, revenues dropped 61% amid the ongoing downward trend in the housing market. The Miami, Florida-based company said it expects further deterioration in overall market conditions for the remainder of 2008.
D.R. Horton, Inc. (DHI), another peer, reported last month a second quarter loss, hurt by inventory related impairment charges and write-downs. The company also witnessed a 38% decline in quarterly revenues, with home sales and orders falling year-over-year.
Los Angeles, California-based KB Home reported a second quarter net loss of $255.9 million or $3.30 per share, wider than the net loss of $148.7 million or $1.93 per share reported in the year-ago period.
Results of the latest period include pretax, non-cash charges of $176.5 million for inventory and joint venture impairments and the abandonment of certain land option contracts, and $24.6 million for goodwill impairment. The net loss also includes a $98.9 million valuation allowance charge against the net deferred tax assets generated during the quarter.
In the previous year, the net loss included pretax, non-cash charges of $308.2 million associated with impairments and abandonments, partially offset by income of $25.5 million, or $0.33 per share, associated with the company's discontinued French operations that were sold in July 2007.
On average, 10 analysts polled by First Call/Thomson Financial expected a net loss of $0.94 per share for the quarter.
The housing slump has hurt the economy deeply. Homebuilders are finding it hard to sell homes, while buyers are waiting for prices to fall further. The Mortgage Bankers Association's weekly applications survey revealed earlier this month that mortgage application volume continued to fall during the week of May 30. Applications declined 15.3% to their lowest rate in six years.
S&P/Case-Shiller said on June 24 that home prices in 20 cities declined 15.3% in April from last year. Home prices in the index decreased 1.4% from the previous month.
KB Home said housing gross margin dropped to a negative 17.5% in the second quarter of 2008 from a negative 3.9% in the second quarter of 2007.
Revenues for the quarter plunged to $639.1 million from $1.41 billion reported in the previous year. The Street estimated revenues of $691.29 million. The company said the decline in revenues was largely due to lower housing and land sale revenues.
Housing revenues decreased to $636.7 million from $1.30 billion, owing to a 41% decrease in homes delivered and a 17% decline in the average selling price.
KB Home delivered 2,810 homes at an average selling price of $226,600 in the second quarter of 2008 compared to 4,776 homes delivered last year at an average selling price of $271,600.
The company's backlog totaled 6,233 homes, as of May 31, 2008. This represents potential future housing revenues of about $1.47 billion. At the end of May 31, 2007, there were 13,672 backlog homes and about $3.74 billion in backlog value.
Company-wide net orders for new homes in the just concluded period decreased 42% to 4,200 from 7,265 in the year-earlier quarter. Cancellation rate in the second quarter of 2008 was 27%, an improvement from 34% in the second quarter of 2007.
Year-to-date, net loss widened to $524.10 million or $6.77 per share from $121.15 million or $1.57 per share in the previous year. Total revenues for the six-month-period plunged to $1.433 billion from $2.802 billion.
Cash and cash equivalents at the end of May 31, 2008 was $1.305 billion, compared to $1.325 billion at the end of November 30, 2007. Inventories for the two periods were $2.608 billion and $3.312 billion, respectively.
According to Jeffrey Mezger, President and Chief Executive Officer of KB Home, "Persistently poor demand for new homes during the second quarter amplified pricing pressures and diminished asset values in many of our served markets, requiring us to recognize additional non-cash charges for inventory and joint venture impairments, abandonments and the write-off of goodwill, all of which significantly reduced our operating results."
Tuesday, Credit Suisse initiated coverage of homebuilding sector with an "Overweight" rating. Analyst Oppenheim said though tough conditions are expected to continue, an inflection point in housing is likely in spring 2009 as inventory levels are likely to start declining. A peak in inventory of homes for sale is likely in spring 2009. The analyst noted that high inventory and modest traffic remain the storm clouds.
KBH shares are currently trading at $17.29, down $0.84 or 4.63%, on 4.38 million shares. For the past year, the stock trended in the range of $15.76-$40.71.
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