KB Home Posts 2Q Loss

Los Angeles, CA, June 29, 2007--KB Home, one of the nation's largest homebuilders, said Thursday it swung to a loss in its second quarter, as revenue declined amid weak home sales and lower home prices and the homebuilder booked a major charge to write down unsold inventory.

The company also declined to give future earnings estimates or project when the housing market would rebound.

KB reported a loss of $148.7 million, or $1.93 per share, for the period ended May 31. A year ago, the company posted net income of $205.4 million, or $2.45 per share.

The latest period included a pretax charge of $308.2 million to reflect the decreased value of unsold homes on its books and for walking away from deposits on land it no longer wants to buy.

"Our second-quarter results reflect the current oversupply of new and resale housing inventory, a difficult situation compounded by aggressive competition and continued weak demand," Chief Executive Jeffrey Mezger said in a statement.

KB was the latest builder to report sagging sales due to weak demand and a glut in unsold homes on the market.

On Tuesday, Miami-based Lennar Corp. reported a second-quarter loss. It was also forced to book a losses on undeveloped land.

Sales of existing homes nationwide were down in May, the third month in a row.

In May, KB announced it would sell its stake in a French subsidiary. That deal is expected to close in the third quarter, so the company classified the French operations, which were profitable in the latest period, as discontinued.

Excluding the French operations, KB's loss from continuing operations came in at $174.2 million, or $2.26 per share, versus profit of $184.4 million, or $2.20 per share, a year ago.

Wall Street expected profit of 7 cents per share. The estimates of the nine analysts polled by Thomson Financial ranged widely, from a loss of $1.46 per share to profit of 47 cents per share.

Revenue fell 36 percent to $1.41 billion from $2.2 billion last year, missing Wall Street's consensus estimate of $1.74 billion. Housing revenue plunged 41 percent to $1.3 billion, as unit deliveries slipped 36 percent to 4,776. The average selling price per home was $271,600, down 8 percent.

Mezger said he could not predict when the market would improve. He said if the sale of the French operation goes through as planned, the company will book a profit for the year, despite the first-half charges.

"However, given current market conditions, we are not able to provide an earnings estimate for the year," he said.

KB Home operates in several states, including California, Florida, Nevada, Texas and Georgia. The company also originates mortgages through Countrywide KB Home Loans, a joint venture with Countrywide Financial Corp.

During a conference call with Wall Street analysts, Mezger said it's too early to say when the U.S. housing market will begin to stabilize.

"In the short-term, we anticipate the pricing and margin pressure will continue until the inventory level of unsold homes is back in balance with demand," he said.

To cope with the housing slump, KB is rolling out new homes that are cheaper to build and can be sold for a price that is more in line with what buyers can afford.

By the beginning of next year, the company will have replaced homes in 75 percent of the developments it opened as of a year ago with the cheaper offerings, Mezger said.

KB's revenue from land sales rose to $112.6 million, up from $11.5 million in the year-ago quarter, reflecting the company's stepped-up effort to unload undeveloped land.

The company generated 7,265 net orders during the quarter, a 3 percent drop from the year-ago quarter.

The decline was an improvement from previous quarters, but it was due largely to fewer order cancelations.

The cancellation rate during the quarter was 34 percent of gross orders, down from 41 percent in the same quarter last year.

The company's backlog, or homes under contract yet to be delivered, fell during the quarter.

As of May 31, it stood at 13,672 units, down from 20,924 units as of the same date in 2006.

For the six months ended May 31, the company reported a net loss of $121.1 million, or $1.57 per share, compared to a profit of $378.8 million, or $4.45 per share in the first half of 2006.

Excluding the French operations, KB's loss from continuing operations for the first six months of the year was $163.5 million, or $2.12 per share, including a noncash, pretax charge of $316.9 million.

Revenue for the first half of the year fell 31 percent to $2.8 billion from $4.08 billion.