June 26 (Bloomberg) -- KB Home, the Los Angeles-based homebuilder that targets first-time buyers, reported a narrower second-quarter loss as the company cut expenses faster than revenue dropped.

The net loss was $78.4 million, or $1.03 a share, compared with a loss of $255.9 million, or $3.30, a year earlier, KB Home said today in a statement. The company was expected to lose 63 cents a share, according to the median estimate of 13 analysts in a Bloomberg survey. Revenue fell 40 percent to $384.5 million while the company slashed expenses by half.

Sales of new U.S. homes fell in May as builder discounts failed to keep pace with the foreclosure-driven decline in resale properties. Sales dropped 0.6 percent from the month before to an annual pace of 342,000, the Commerce Department said this week.

“Prevailing recessionary economic conditions weighed heavily on the homebuilding industry and on our operations during the second quarter,” KB Home Chief Executive Officer Jeffrey Mezger said in the statement.

“Although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating,” he said.

The company ended the quarter with $1.10 billion in cash.

Builders including KB Home are competing with a glut of repossessed homes up for sale. Foreclosure filings, including default and auction notices as well as property seizures, climbed 18 percent in May from a year earlier, according to Irvine, California-based RealtyTrac Inc.

Foreclosures Rise

The number of foreclosure filings topped 300,000 for the third consecutive month, with an estimated one in every 398 homes in some stage of foreclosure.

KB Home is battling the competition by pushing its Open Series houses, which are smaller and less expensive and bring higher profit margins than the company’s older designs.

Net orders dropped 31 percent to 2,910 homes from a year earlier, while rising from the first quarter by 59 percent.

The homebuilder reported a backlog of 3,804 homes, reflecting potential future revenue of $796.9 million, compared with a backlog of 6,233 homes a year ago, then estimated as being worth $1.47 billion.

About 20 percent of signed contracts were canceled during the quarter, compared with 27 percent a year ago, the company said.

Deliveries Drop

Home deliveries dropped 37 percent to 1,761 and the average sales price declined 4.6 percent to $216,200.

Second-quarter results were released before the start of regular U.S. trading. KB Home rose 8.3 percent to $14.77 yesterday in New York Stock Exchange composite trading. The shares touched $15 in pre-market trading this morning.

KB Home, founded in 1957 by Eli Broad and Donald Kaufman, operates in nine U.S. states, including California, Florida, Nevada and Arizona. The company has home-design partnerships with Martha Stewart and Walt Disney Co.

To contact the reporters on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net; Oshrat Carmiel in New York at ocarmiel1@bloomberg.net.

Last Updated: June 26, 2009 09:30 EDT