KB Home, one of the nation’s largest homebuilders, swung to a loss Thursday, citing a deep deterioration in the housing market and warning the sales slump will likely extend into next year.
KB’s financial results were released the same day the Commerce Department reported new home sales in August fell 8.3 percent from the previous month to the lowest level in seven years.
“We expect housing industry conditions to continue to worsen through the end of the year and into 2008,” said Jeffrey Mezger, KB’s president and chief executive officer.
“Our third-quarter results reflect the seriously challenging market conditions that prevail for homebuilders across most of the nation,” he said.
Los Angeles-based KB Home reported a loss of $35.6 million, or 46 cents per share, for the quarter ended Aug. 31, compared with a profit of $153.2 million, or $1.90 per share, in the year-ago period.
The company also said it took pretax charges of $690.1 million and $107.9 million to write down the value of unsold inventory and joint-venture holdings.
KB shares rose 62 cents, or 2.6 percent, to $24.71.
The homebuilding sector has been struggling as many would-be buyers wait for prices to drop further or struggle to qualify for mortgages that now carry tighter standards. That has left more homes on the market, forcing builders to lower prices and squeezing their profit margins.
“We remain more concerned with excess home inventory levels, which we note are eight times the size of the new home market, and continue to be a key overhang on the overall housing market,” wrote Michael Rehaut, an analyst with J.P. Morgan Securities Inc.
The situation worsened in August, as the fallout from rising mortgage defaults triggered tightening in the credit markets, prompting lenders to scale back some loan programs.
KB’s losses were partially offset by a gain of $438.1 million from the sale of its stake in its French subsidiary.
Excluding the French operations, the company reported a loss of $478.6 million, or $6.19 per share, from continuing operations. The company used the proceeds from the sale of its French operations to pay off $650 million in debt.
Analysts polled by Thomson Financial expected a loss of 72 cents per share. Those estimates typically exclude one-time charges and gains.
Revenue during the quarter fell 32 percent to $1.54 billion, from $2.28 billion last year. That surpassed Wall Street’s estimate of $1.5 billion.
During a conference call with Wall Street analysts, Mezger said the housing market won’t improve until consumer confidence is restored and the supply of unsold homes gets back into balance with demand.
Mezger said KB, which makes homes to order, saw an increase in cancelations in August as buyers balked at changes in financing or couldn’t qualify for loans under new lending criteria.
“Consumer confidence got rattled,” Mezger said.
The company posted a cancellation rate of 50 percent during the most recent quarter, down from 60 percent in the year-ago quarter but well above the 34 percent rate in the second quarter of this year.
KB had 3,907 net orders for the third quarter, down 6 percent from the year-ago period. The company said only its operations in the Southeast saw an increase in net orders year-over-year.
KB’s unit deliveries fell 28 percent to 5,699, and the average selling price dropped 7 percent to $267,700.
The company’s backlog, or homes under contract yet to be delivered, fell during the quarter. As of Aug. 31, the figure stood at 11,880 units, down from 17,198 units in the year-ago quarter.
KB was the latest builder to report sagging sales and earnings during the third quarter.
On Tuesday, Miami-based Lennar Corp. reported a third-quarter loss of more than $510 million. The company said it had cut its work force by 35 percent and warned it expected further job cuts.
KB Home, meanwhile, has scaled back the size of some of its floor plans to make homes more affordable.
The company is also concentrating on targeting first-time and move-up buyers, a category that Mezger expects will be KB’s largest segment going forward.
Despite the housing doldrums, the company is working to position itself for the market’s eventual recovery, he said.
“In our 50-year history, KB Home has been through these cycles before, each time emerging with a stronger business,” he said.