KB Home Posts
Disappointing Results

An attempt by home builder KB Home to hold its prices resulted in disappointing sales in its fiscal first quarter, signaling that home prices likely have further to fall before a bottom is found in the housing market.

"I will be the first to acknowledge that we have not pleased with our sales results for the quarter," KB Home Chief Executive Jeff Mezger told analysts during a conference call Friday. "We elected to hold pricing and focus more on restoring profitability during the quarter, but the markets continued to move away from us, leaving us at a competitive disadvantage."

For the quarter ended Feb. 29, the Los Angeles home builder -- one of the nation's largest -- swung to a net loss. It said net orders plunged 75% to 1,449, which reflects KB's effort to start fewer new developments and its decision to pull out of several markets, including Chicago, Washington, D.C., and New Mexico. The company's cancellation rate was 53%, down from 58% in the prior quarter, but up from 34% a year earlier. Its average sale price declined 7% to $248,200.

The latest results include $223.9 million in inventory and joint-venture write-downs and the abandonment of certain land-option contracts, and a $100 million deferred-tax-asset charge. To qualify for deferred tax assets, a company must be reasonably confident it will have taxable income.

KB Home has been aggressively reducing its supply of land and stockpiling a cushion of more than $1.3 billion in cash on its balance sheet, while focusing on marketing to first-time home buyers and constructing smaller, lower-cost houses to increase sales amid the downturn. The company also began offering a price-protection incentive -- promising contracted buyers a lower price if prices of comparable homes drop before closing.

The company's worse-than-expected results reveal that such strategies may not be enough to offset the glut of homes on the market, lack of available mortgages and waning consumer confidence. The builder's shares were down 4.9% to $24.54 in 4 p.m. composite trading on the New York Stock Exchange.

"Until some measure of consumer confidence is restored we believe pricing and margins will remain under pressure," says Mr. Mezger.

-- Dawn Wotapka contributed to this article.

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