KB Home reports eighth straight quarterly loss
KB Home Corp., California’s largest home builder, announced its eighth straight quarterly loss Friday, and company officials said they expect home prices to continue to fall in 2009.
The company lost $307.3 million, or $3.96 a share, in the fourth quarter of 2008, but that was substantially less than the $772.7-million loss, or $9.99 a share, it reported for the same quarter in 2007.
Nevertheless, the loss reported Friday exceeded the median estimate of $96.9 million, or $1.19 a share, by analysts polled by Bloomberg.
Revenue for the quarter was $919 million, down 56% from the fourth quarter of 2007. For the year, revenue was down 53%, to $3.03 billion.
The home-building industry has been devastated by a glut of foreclosed homes that have undercut the prices of new residences. KB Home Chief Executive Jeffrey Mezger told analysts in a conference call that the company’s strategy has been to compete head-on with foreclosed homes by selling lower-priced smaller houses.
KB Home’s average selling price for its homes was $232,000 in the fourth quarter, down 6.4% from the same quarter in 2007. Mezger said the lower cost of building the company’s smaller homes, however, had kept the profit margin up on sales of the less-expensive houses.
“Housing market volatility will continue” this year, he said, but added that foreclosures and falling prices are drawing buyers, especially in Southern California. Mezger said KB Home plans to compete in Southern California at the bottom end of the market “because it seems to be where the market stabilizes,” he said.
The company will continue to cut costs and tailor its homes to sell at lower prices to meet further home price drops, Mezger said.
“If the market deteriorates, we have to come up with steps to remain competitive when the market goes down,” he said.
Foreclosed properties now make up the majority of homes sold in Southern California. The median home sale price in Southern California was $285,000 in November, but prices were lower in the Inland Empire, where KB Home has numerous developments. In San Bernardino County, the median November sale price was $185,000; Riverside County’s November median sale price was $220,000.
KB Home had been advertising its lower-priced homes as affordable alternatives to renting, but rents nationwide have now started to fall with home prices.
Mezger said he expected KB Home to have positive cash flow by the end of 2009 because of cost cutting and the new sales strategy. The company has cut the number of homes under construction -- at the end of the fourth quarter, the total number of homes being built, 2,544, was 86% below its peak level in 2006.
KB Home has also stopped building in remote areas in which the company opened new developments during the housing boom.
“We’ve reverted our focus back to large metropolitan areas,” Mezger said.
KB Home builds homes in 13 states and targets first-time home buyers. The company was founded in 1957 by Donald Kaufman and Eli Broad in Detroit, but has been headquartered in Los Angeles since 1963.
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