As expected, KB Home, No. 5 in the 2006 BUILDER 100, announced third-quarter earnings losses on Thursday morning for the period ending Aug. 31. In addition to the reported losses, the Los Angeles-based home builder has lost more than half of its market value. With shares dropping 4 percent on Wall Street Wednesday, the builder's value has slipped 53 percent in 2007.
The net loss for KB Home in the third quarter was $35.6 million compared to a net income of $153.2 million. The report also revealed that revenue fell 32 percent to $1.54 billion.
Company CEO Jeffrey Mezger said in a statement that the company sees "no signs that the housing market is stabilizing."
"Our third-quarter results reflect the seriously challenging market conditions that prevail for home builders across most of the nation," adds Mezger. "The oversupply of unsold new and resale homes and downward pressure on new-home values has worsened in many of our markets as tighter lending standards, low affordability, and greater buyer caution suppress demand, while higher foreclosure activity combined with heightened builder and investor efforts to monetize their real estate investments boost supply. The negative impact of these conditions on our selling prices and gross margins prompted us to take substantial write-downs of inventory and goodwill in the third quarter."
During a conference call to investors Thursday afternoon, Mezger said that despite leaving markets in Florida's Treasure Coast and Fort Myers, as well as Indianapolis, KB Home remains committed to all of its other markets. But, he stressed that its commitments do not mean more neighborhoods.
"It does not make sense to fuel cash in to open new communities," Mezger said, citing current market conditions.
During the teleconference, Mezger also called the company's branding collaboration with Martha Stewart a "bright spot" with numerous success stories in terms of traffic. In addition, liquidity, according to Mezger, is the builder's top priority.
The announcement also reported that the company's home deliveries fell 28 percent to 5,699, and the average sales price fell 7 percent to $267,700. In addition, net home orders slid 6.2 percent to 3,907. And the cancellation rate for KB Home in the quarter was 50 percent, compared with the prior quarter's 34 percent.
One bright spot for the builder was the completion of the sale of its 49 percent stake in French developer Kaufman & Broad SA to PAI Partners, resulting in gross proceeds of about $800 million.
"Despite the disappointing third-quarter loss, we are making steady progress on strengthening our balance sheet and aligning our operations and investment strategy with current market conditions and our longer-term expectations for the business," said Mezger. "Having completed the sale of our French operations, we are now exclusively focused on our core U.S. home building business. Proceeds from the all-cash sale, combined with substantial ongoing cash flows from our U.S. operations, enabled us to redeem $650 million in debt during the quarter."
So far 2007 has not been kind to KB Home. Through the first nine months, the builder has lost $156.8 million on revenues of $4.35 billion. Through the first nine months of 2006, KB had earned $531.99 million on revenues of $6.37 billion.