KB Home, Los Angeles (NYSE:KBH), before market open Tuesday reported a net loss of $54.7 million (-$.71 per diluted share) for its fiscal first quarter ended February 28, 2010. The loss, which compares with a loss of $58.1 million ($-.75 cents per share) in last year's fiscal first quarter, more than doubled the estimates of some analysts and was well wide of the consensus loss of 42 cents per share.

The included impairments and write downs of $13.4 million for inventory impairments and land option contract abandonments and a $21.2 million charge against deferred tax assets. Minus the tax charges, the loss of $0.44 still missed the consensus analyst estimate. For the first quarter of 2009, the$32.3 million in impairments were taken along with $22.7 million in tax charges.

Revenues dropped 14% to $264.0 million in the quarter, compared to the same period in 2009, as housing revenues also dropped 14% to $262.2 million.Closings dropped 8% year-over-year to 1,326 and the average selling price declined 6% to $197,700.

Net orders increased 5% to 1,913 in the quarter, and the cancellation rate improved to 22% from 28% in the year-earlier quarter. As a percentage of beginning backlog, the cancellation rate was 26% in the first quarter of 2010 and 31% in the year-earlier quarter. Homes in backlog at quarter's end rose 2% on a year-over-year basis to 2,713, but backlog value declined 6% to approximately $523.8 million. On a sequential quarter basis, however, the number of homes and projected future revenues in backlog increased 28% and 24%, respectively.

The company took a $1.2 million loss for the quarter from joint ventures, an improvement from $9.7 million in the previous year's quarter, which included$7.6 million in impairments.

Housing gross margin increased to 13.7% from 4.9% in the same period of 2009; excluding impairments and charges, it rose to 18.8% from 13.0%. Land sales generated break-even results in the first quarter of 2010, compared to a loss of $.2 million in the first quarter of 2009.

SG&A ramped up, however, to 27.5% of revenues, coming in $72.2 compared to $61.2 million in the year-earlier quarter. The company attributed the rise, in part, to "increased costs associated with long-term, cash-settled compensation tied to the Company's stock price and higher legal expenses."

Interest expense increased to $19.4 million in the quarter from $8.7 million largely due to a lower balance of inventory qualifying for interest capitalization. The increase also reflected $1.4 million of debt issuance costs written off during the current quarter in connection with the KB's voluntary reduction in its revolver from $650.0 million to $200.0 million.

The Company's financial services operations, which include the KB's equity interest in an unconsolidated mortgage banking joint venture, reported pretax income of $1.9 million in the first quarter of 2010, compared to pretax income of $1.7 million in the year-earlier quarter.

KB ended the quarter with $1.29 billion of cash and cash equivalents, including $90.2 million of restricted cash. Total debt at quarter's end was$1.82 billion, flat with the same period last year. There were no cash borrowings under the revolver. Debt to total capital was 73.7% at February 28, 2010, up from 72.0% at November 30, 2009; net debt to capital, was 44.8% at February 28, 2010, compared to 42.9% at November 30, 2009.

"The operating environment for the homebuilding industry is better today than last year at this time," said Jeffrey Mezger, president and CEO."Encouraging data in recent months suggest that a number of housing markets may be stabilizing or starting to rebound, though we do not yet see, in many respects, a sustained nationwide recovery. While the pace is likely to be uneven in the months ahead, we currently expect housing market conditions to follow a generally positive trajectory throughout this year and into 2011."

Mezger said the company "is positioned to return to profitability in the latter part of this year."

Analysts zeroed in on the increase in SG&A. "Although home building gross margins came in ahead of our forecast ... This was more than offset by higher that expected SG&A/revenue of 27.9%, reducing earnings by approvimately .09 (per share)," wrote UBS home building analyst David Goldberg.

Stephen East, now with Ticonderoga Securities, was more upbeat. "Our initial take on KBH is that it's pretty decent versus our expectations except for SG&A. The most important metrics for us heading into the release were order rates, gross margin and operating margin. To of those three were better than expected. The third, operating margin, has the verdict still out as KBH appears to have some one-time charges we cannot yet quantify."