Bloomberg News

KB Home Falls Most in Two Years on Wider Second-Quarter Loss

June 29, 2011

(Updates with closing share price in fifth paragraph, land deal in last paragraph.)

June 29 (Bloomberg) -- KB Home, the Los Angeles-based homebuilder that targets first-time buyers, fell the most in more than two years in New York trading after it reported a wider quarterly loss and said it may explore ways to raise cash.

The net loss for the second quarter ended May 31 was $68.5 million, or 89 cents a share, compared with a loss of $30.7 million, or 40 cents, a year earlier, the company said today in a statement. Analysts predicted a loss of 33 cents a share, the average of 16 estimates in a Bloomberg survey.

U.S. homebuilders are struggling as unemployment close to 9 percent and a glut of discounted foreclosures reduce demand for new properties. KB Home is seeking to boost revenue by acquiring land and opening new communities. The company added 60 developments in the first half of the year and plans to start another 45 to 50 in the second half, Chief Executive Officer Jeffrey Mezger said in a conference call with analysts.

“The results were much worse than expected,” Vicki Bryan, an analyst in New York for debt research firm Gimme Credit LLC, said in an interview. “What’s really disturbing is that the company is spending its dwindling cash on land even if it means tapping the capital market and selling stock. That sounds like desperation and it’s got the market spooked.”

KB Home fell $1.84, or 15 percent, to $10.08 as of 4:15 p.m. in New York Stock Exchange Composite trading. It was the biggest one-day drop since September 2008. The shares have lost 25 percent this year, compared with a 1.9 percent decline in the 12-member Standard & Poor’s Supercomposite Homebuilding Index.

Capital Markets

The company is evaluating whether to tap capital markets, by selling stock, issuing bonds or “other options that are relating to bank lines,” Chief Financial Officer Jeff Kaminski said on the conference call. He said he doesn’t see an “urgency” on liquidity.

KB Home’s second-quarter revenue decreased 27 percent from a year earlier to $271.7 million and deliveries fell 29 percent to 1,265. The average selling price increased 3 percent from a year ago to $213,400. Net orders dropped 11 percent to 1,998.

The loss included inventory impairments and land option contract abandonments of $20.6 million, as well as costs of $14.6 million related to the company’s investment in a development in Henderson, Nevada.

U.S. Home Prices

Home prices fell 4 percent in April from a year earlier, the biggest drop since November 2009, according to the S&P/Case- Shiller index of property values in 20 U.S. cities. Sales of new houses fell 2.1 percent in May, the first decrease in three months, the Commerce Department said June 23.

Mezger said he expects sequential quarterly increases in deliveries and revenue for the rest of the year.

“Uncertainty and caution about the economy are keeping many qualified homebuyers from entering the market,” he said in the statement. “We believe the current housing market conditions will likely continue until there are meaningful and sustained improvements in job growth and consumer confidence.”

In a separate statement today, KB Home said it agreed to buy land for 11 new developments in San Antonio from Fieldstone Homes, a closely held builder based in Irvine, California. Terms of the deal were not disclosed.

--Editors: Christine Maurus, Kara Wetzel

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.


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