KB Home (NYSE:KBH), Los Angeles, on Friday morning reported a $78.4 million loss (-$1.03 per diluted share) for its second fiscal quarter ended May 31, compared to a loss of $255.9 million (-$3.30 per diluted share) for the same period last year.

The loss included charges for inventory and joint venture impairments and the abandonment of land option contracts totaling $49.5 million and a $31.7 million FAS 109 charge to deferred tax assets. Minus the tax charge, earnings per share came in at a loss of 61 cents, slightly ahead of the 64- cent Wall Street consensus estimate.

Revenues fell 40% to total revenues of $384.5 million, compared to the year-ago quarter. Home building revenues accounted for $380.8 million of that, also down 40%.

Homes delivered dropped 37% to 1,761, and average selling prices fell 5% to $216,200. Regionally, homes delivered decreased 6% in the Company's West Coast region to 569, 55% in the Southwest region to 241, 39% in the Central region to 525 and 47% in the Southeast region to 426. The average selling price declined 4% to $319,300 in the West Coast region, 23% to $176,200 in the Southwest region, 8% to $157,500 in the Central region and 15% to $173,700 in the Southeast region.

Net new home orders were down 31% from last year's quarter to 2,910 but up 59% from the first quarter. The cancellation rate improved to 20% from 28% in the first quarter and 27% in the second quarter of 2008. As a percentage of beginning backlog, the cancellation rate also improved to 27% in the current quarter from 31% in the first quarter of 2009 and 33% in the second quarter of 2008.

The number of homes in backlog at May 31, 2009 decreased 39% year-over-year to 3,804; backlog value declined 46% to $796.9 million.

The company's equity in loss of unconsolidated joint ventures was $11.8 million in the second quarter of 2009, including $7.2 million of impairment charges. Financial services contributed pretax income of $4.4 million in the second quarter of 2009, up 45% from $3.0 million in the year-earlier quarter, reflecting higher margins within its unconsolidated mortgage banking joint venture, driven by the origination and sale of more government-insured loans, and expense reductions.

Housing gross margin improved to 1.9% from a negative 17.5% in the year-ago quarter, though SG&A remained elevated at 19.1% of revenues, which was actually down 39% to $72.6 million but compared against lower revenues. In comparison, SG&A represented 201% of revenues in the first quarter and 18.7% in last year's second quarter.

"Looking forward, although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating at both the local and national levels," Jeffrey Mezger, president and CEO, said in a statement. "Ongoing foreclosure activity, which has increased housing supply and exerted downward pressure on home prices in a number of markets, is also leading housing affordability to record levels.Job market weakness and tight mortgage lending standards continue to restrain demand, yet consumer confidence appears to be growing. While these conflicting market signals make it premature to declare that housing has reached the end of its severe, multi-year correction, they may indicate we are approaching a point of relative stability, especially if the overall economy rebounds and mortgage interest rates remain low."

UBS home building analyst David Goldberg saw positives in the earnings report. Citing the better-than-expected performance in new orders, which actually increased 6% year-over-year in the Central region, Goldberg wrote in a research note, "In our view, this reflects the success of management's proactive efforts to redesign its product to more effectively compete with foreclosures. Although the sales pace will likely wane in second half, 2009, driven by normal seasonal trends and our expectation that the California state tax credit won't be renewed, we continue to believe the company's strategy positions it well to outperform."

Goldberg has a neutral rating on the stock with a price target of $15.

KB shares opened with gains but were down 8.6% at $13.50 in heavier than normal late-morning trading as the overall market drifted downward and most of the rest of the builder group was trading at price declines ranging from 1% to 3%.

Learn more about markets featured in this article: Los Angeles, CA.