KB Home, Los Angeles (NYSE:KBH) Tuesday morning reported a wider-than-expected loss of $114.5 million, -$1.49 per share, for its fiscal first quarter ended Feb. 28, due in large part to $76.5 million in write-downs and losses associated with the Inspirada joint venture near Las Vegas. Analysts were expecting a loss of 27 cents per share.
The loss compares to a net loss of $54.7 million, -$.71 per diluted share, for the same period in 2010.
KB took a joint venture impairment charge of $53.7 million and a loss on loan guaranty of $22.8 million, both related to the Company's investment in South Edge, LLC, the umbrella company of several home builders who are involved in the Inspirada development. KB is the largest stakeholder.
A federal judge in February sided with the lead lender to the JV, J.P.Morgan Chase, and approved an involuntary bankruptcy petition.
KB also took a charge of $1.8 million for impairments and land-option abandonments.
Revenues slid 25% from last year's quarter to $196.9 million as deliveries fell 28% to 949. The average selling price, however, rose 4% to $205,700.
Net orders dropped 32% from the 2010 quarter to 1,302. The cancellation rate rose to 29% from 22% of gross sales in the year-earlier quarter; As a percentage of beginning backlog, the cancellation rate was 39%, up from 26%.
Homes in backlog at February 28, 2011 were down 38% on a year-over-year basis to 1,689; backlog value dropped 32% to $353.6 million.
Housing gross margin in the first quarter fell to 12.6% from 13.7% in the same period of 2010. Excluding write-downs, the margin was 13.4%, down from 18.8% in the same quarter of 2010. SG&A dropped 31%, or $22.6 million, to $49.6 million. KB's equity in loss of unconsolidated joint ventures rose to $55.8 million in the first quarter of 2011 from $1.2 million in the year-earlier quarter, including the write-downs associated with Inspirada.
Cash, cash equivalents and restricted cash at quarter's end totaled $857.0 million, of which $735.8 million was unrestricted. The Company's debt balance of $1.70 billion at February 28, 2011 decreased by $73.8 million from November 30, 2010, reflecting the repayment of secured debt.
"As this year's spring selling season has commenced, we are encouraged by the higher traffic we experienced in the first quarter compared to a year ago, as well as the sequential improvement in our monthly net order levels during the quarter," said Jeffrey Mezger, president and CEO. "While there is still uncertainty as to when a sustained housing recovery may occur, we believe that our operational business model and proven strategies will continue to provide us with a competitive advantage as we navigate through these persistently challenging times."
Stephen East, home building analyst at Ticonderoga Securities, was blunt in his research alert. "KBH¹s operational results were shockingly disappointing. All the headway made during 2010 appears to have been tossed and the bar reset back one year. The only positive we take away--and it is an important positive--is that the Inspirada JV apparently has taken its charges, thus removing some useful overhang on the equity. Now to get the building operations moving forward again..."
Michael Rehaut at J.P. Morgan was more sanguine. "While highly disappointed with these results, we point to the stock¹s large 27% discount to its peers on a P/B basis (ex-adj. FAS 109), and also continue to believe results should improve during the course of the year across margins and orders."
Investors voted with their feet, sending KB shares down nearly 9% at market open. The stock had recovered to a drop of 7.5% at $11.28 during the first hour of trading.
