KB Home (NYSE:KBH), Los Angeles, on Friday reported a net loss of $66.0 million (-$.87 per share) for its fiscal third quarter ended Aug. 31. The loss included $47.7 million in inventory and joint venture impairments and abandonment of land option contracts as well as a $35.5 million charge to deferred tax assets. The pretax loss was $77 million, which was partially offset by an $11 million income tax benefit.
The loss was less than half the $144.7 million loss (-$1.87 per share) posted in the 2008 third quarter, which included charges of $82.2 million for inventory and JV impairments. This quarter's loss, however, missed the consensus Wall Street estimate of -$0.58 per share, sending KB shares down nearly 7% at market open Friday. KB closed down 8.5% at $16.96 Friday.
Revenues were down 33% to $458.5 million, with housing revenues accounting for $454.2 million of that, down 32% from last year's third quarter.Closings fell 20% from last year's quarter to 2,240, and the average selling price declined 15% to $202,800.
Net new orders jumped 62% to 2,158, with increases reported by each region. KB attributed the increase to its "Open Series" line of homes and to a cancellation rate of 27% versus 51% for the same period last year.
Backlog at August 31, 2009 was down 22% from the same period last year to3,722 homes with an aggregate value of $734.1 million, down from $1.13 billion in last year's quarter.
Gross margin improved to 11.1% in the quarter from 3.9% in last year's quarter of 2008. Selling, general and administrative expenses were down 37% to $83.9 million, 18.5% of housing revenues, down from 19.9% in last year's quarter.
Loss of unconsolidated joint ventures was $26.3 million, including $23.2 million in impairment charges, down from a loss of $46.2 million in last year's quarter, which included $43.1 million of impairment charges.
Financial services operations, which include an equity interest in an unconsolidated mortgage banking joint venture, reported pretax income of$5.6 million in the current quarter, down 6%, due primarily to a decline in the number of loans originated by the joint venture.
"We are encouraged by the positive net order results we achieved in the quarter but remain cautious given the current economic climate," said Jeff Mezger, president and CEO. "The housing market overall remains in a transition where it will likely be some time before we see meaningful improvement in the economic conditions that are essential to our industry's future growth," he said. "While tentative indications are that some negative economic trends are slowing or leveling out to varying degrees in certain markets, the ongoing impact of and the potential for increased foreclosures and mortgage delinquencies, higher unemployment, tighter credit standards, and relatively weak consumer confidence make the timing and extent of a sustained rebound still uncertain."
During the quarter, KB issued $265.0 million in 9.1% senior notes due in 2017, using the net proceeds to purchase $250.0 million of a total of $350 million in 6 3/8% senior notes due in 2011. KB's only debt maturing before2014 is remaining $100.0 million of the 6 3/8% notes. It had no borrowings outstanding under its revolving credit facility at quarter's end and $1.1 billion in cash, including restricted cash, on its balance sheet.
UBS analyst David Goldberg, in a research note to investors, called the increase in new orders "impressive," adding, "This reflects the success of management proactive efforts to redesign its product line to more effectively compete with foreclosures...this strategy should help the company withstand the downturn as it gains improving leverage off a greater sales rate."