KB Home stung by weak construction and charges

AP News
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Posted: Jun 29, 2011 10:24 AM
KB Home stung by weak construction and charges

KB Home, stung by falling home construction and more than $30 million in charges, reported Wednesday that its losses more than doubled in the second quarter.

The results were worse than Wall Street expected and KB Home shares tumbled 8 percent in early trading.

"Uncertainty and caution about the economy are keeping many qualified homebuyers from entering the market, even though historically high housing affordability makes this a good time to buy," said CEO and President Jeffrey Mezger. "We believe the current housing market conditions will likely continue until there are meaningful and sustained improvements in job growth and consumer confidence."

And consumer confidence is dismal, according to reports released this week.

Following a string of bad news that threatens the painfully slow economic recovery, consumer confidence fell to a seven-month low in June on continuing worries about high unemployment and stagnating wages, according to the Conference Board's Consumer Confidence Index released Tuesday.

Americans have not been lured back into the housing market, which has been made clear by rising rents.

KB Home, based in Los Angeles, said it lost $68.5 million, or 89 cents per share, in the three months ended May 31. That compares with a loss of $30.7 million, or 40 cents a share, in the same period last year. The results include $20.6 million in charges for inventory impairments and land option contract abandonments, and a loss of $14.5 million on a loan guarantee.

Revenue slumped 27 percent, to $271.7 million from $374.1 million the year before.

Analysts polled by FactSet were expecting a loss of 31 cents a share on roughly $291.4 million in revenue.

A bout of spring activity meant that in the number of people who signed contracts to buy homes in May moved sharply higher, according to a report released Wednesday by the National Association of Realtors. Its index of sales agreements for previously occupied homes rose 8.2 percent last month, to a reading of 88.8.

Still, a reading of 100 is considered healthy by economists. The last time the index reached that level was in April 2010, the final month when buyers could qualify for a federal tax credit.

Homebuilders are still trying to call the bottom for the market.

"Although a broad-based housing recovery remains stalled, it appears that the worst of the crisis is behind the homebuilding industry as select markets for new homes are showing signs of stability," said Mezger.

Yet the housing market remains unstable and there are real fears of another dip in prices.

Last summer prices jumped nearly 4 percent only to fall more than 7 percent to new record lows over winter. Since the housing market collapse five years ago, prices have fallen more severely than they did during the Great Depression.

KB Home builds homes in 12 states and was ranked the fifth-largest homebuilder in the nation last year, by closings. It said it built 1,265 homes during the quarter, down 29 percent from a year ago. Orders were down 11 percent to 1,998. However selling prices edged up 3 percent.

Company shares fell 95 cents to $10.97 Wednesday morning.