Write-down drives KB Home to $268M loss in first quarter

KB Home, one of the nation’s biggest residential homebuilders, posted a loss of more than $268 million in its first quarter as a worsening housing market forced the company to take a large write-down.

Jeffrey Mezger, KB Home’s president and chief executive, said a growing supply of unsold new and existing homes on the market, tight mortgage lending and industrywide discounting drove down sale prices and compressed margins during the quarter.

That forced the builder to take impairment charges and walk away from land option contracts.

“Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand,” Mezger said. “We do not anticipate meaningful improvement in these conditions in the near term, as it is likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve.”

Mezger did note that recent figures from the National Association of Realtors showing that the median price of a resale home declined 8.2% last month boded well for the company.

“Our biggest competitor is the resale market, and a drop in price of this magnitude could clear the overhang of inventory more quickly and lead to price stability earlier rather than later,” Mezger said.

For the quarter ended Feb. 29, the Los Angeles-based company posted a loss of $268.2 million, or $3.47 per share, compared with a profit of $27.6 million, or 34 cents, a year earlier.

The latest period included a charge of $223.9 million in write-downs related to falling home prices.

Revenue tumbled 43% to $794.2 million from $1.39 billion last year.

Analysts surveyed by Thomson Financial were looking for a loss of $1.17 per share on revenue of $805.7 million. The earnings estimates typically exclude one-time items.

Earlier this week, the Commerce Department reported new home sales in February hit a 13-year low. Another big homebuilder, Lennar Corp., reported a fourth-quarter loss earlier this week.

KB Home builds homes to order and has operations in nine states.

Like other builders, it has suffered as many buyers wait for prices to drop further or struggle to qualify for mortgages that now carry tighter standards. Rising mortgage defaults and foreclosures have also helped weaken sales, forcing KB and other builders to lower prices, squeezing their profit margins.

KB’s unit deliveries fell 43% to 2,928. Home deliveries were weakest in the Southeast, declining to 675 from 1,629 in the year-ago quarter.

The average selling price of KB’s homes dropped 7% to $248,200 during the quarter, with homes in the West Coast posting the sharpest drop, falling to $392,600 from $470,400 a year earlier.

Net home orders totaled 1,449, down 75% from 5,744 net orders a year earlier. The sharp decline came as KB took steps to consolidate or pull out of some markets.

The builder had about 38% fewer active selling communities during the quarter than in the year-ago period and has continued to scale back operations. Earlier this month, it announced plans to cease building homes in the mid-Atlantic, Chicago and Albuquerque, N.M.

The cancellation rate was 53%, up from 34% in the year-ago quarter but down from 58% in the fourth quarter.

The company’s backlog, or homes under contract yet to be delivered, fell during the quarter. As of Feb. 29, the figure stood at 4,843 units, down 57% from 11,183 units at the close of the same quarter last year.