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KB Home's woes deepen

The builder posts a bigger-than-expected loss of $773 million in its fourth quarter amid the housing slump.

January 09, 2008|Peter Y. Hong | Times Staff Writer

Shares of KB Home plunged 9% on Tuesday to a six-year low after the Los Angeles home builder reported a bigger-than-expected fiscal fourth-quarter loss of $773 million.

Wall Street had expected a loss of $1.34 a share, according to a Bloomberg survey of analysts. Instead, the company reported a loss of $9.99 a share for the quarter ended Nov. 30.

In a conference call with analysts Tuesday, KB Home Chief Executive Jeffrey Mezger discounted any hope of a quick turnaround in the housing market, citing "oversupply, foreclosures, reduced affordability and declining consumer confidence."

"Current conditions are not improving enough to clear inventories," which stand at nine months for new homes nationwide, he said.

To ride out the slump, Mezger said KB Home had eliminated jobs and cut back home construction. The company also cut its debt by $759 million and increased its cash balance by $625 million to $1.3 billion.

This reserve should help KB Home survive the tough housing market, said Rashi Dahod, an Argus Research analyst.

"Regardless of a drop in stock price, their balance sheet is strong. They closed the year with $1.3 billion in cash," he said.

The $773-million fourth-quarter loss compares with a loss of just under $50 million, or 64 cents a share, in the same period a year earlier.

Revenue fell to $2.07 billion for the fourth quarter, down from $3.01 billion the previous year, because of lower home sales and prices.

For fiscal 2007, KB posted a loss of $929.4 million, or $12.04 a share, contrasted with a profit of $482.4 million, or $5.82, in fiscal 2006. Revenue fell 32% to $6.42 billion.

Mezger said the company's customer mix was shifting.

"We are definitely seeing a buyer viewing the home for lifestyle, intending to live in it for a while. The days of the flipper are gone," he said.

Although KB focuses on first-time buyers, Mezger said the number of customers trading up had declined.

"A lot of move-up buyers have difficulty disposing of their current home; they're upside down," he said, referring to homeowners who owe more on their property than it's worth.

As land prices fall, Mezger said, KB Home will be able to buy lots at lower prices and boost future margins on home sales.

The National Assn. of Realtors gave a more upbeat assessment of the housing market Tuesday, predicting that home sales would hold steady and then climb by year's end.

"A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed until late 2008," NAR chief economist Lawrence Yun said.

Yun's prediction is based on NAR's pending home sales index, which the group reported fared better in November than it did in August and September. The index fell 2.6% from October, and was 19.2% below the previous November.

The index tracks signed housing contracts. A 100 score reflects the average level of contract activity in 2001. The November index was 87.6, compared with 108.4 in November 2006.


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