KB Home Falls 8.5% After Reporting Decline in Net Orders

KB Home (KBH), the Los Angeles-based homebuilder that targets first-time buyers, fell the most in more than four months after it reported a decline in orders and government data showed new-home sales dropped in February.

KB Home had a net loss for the three months ended Feb. 29 of $45.8 million, or 59 cents a share, compared with $114.5 million, or $1.49, a year earlier, the company said today in a statement. Analysts expected a loss of 23 cents a share, the average of 17 estimates in a Bloomberg survey. Net orders fell 8 percent from a year earlier to 1,197 homes.

Shares of eight of the 11 companies in the Standard and Poor’s 1500 Homebuilding Index (S15HOME) declined today after the Commerce Department said purchases of U.S. new homes unexpectedly fell in February for a second month. KB Home lost 8.5 percent to $10.29 at the close in New York, the most since Nov. 9 and the worst performance in the index, which fell 1.2 percent.

“We are more bearish on the company fundamentally” after KB Home’s release of first-quarter results, Vincent Foley and Cedric Morris, analysts with Barclays Capital (JNK) in New York, said in a note to clients. “We believe that the expectations for the industry (and KB Home in particular) may be to too optimistic, considering the inconsistency that we continue to see with various economic data points.”

Improving Market

The decline in net orders was not “reflective” of current market conditions, which have been bolstered by an improving economy, Jeffrey Mezger, KB Home’s president and chief executive officer, said today in a conference call with analysts. Orders fell, in part, because of a spike in cancellations caused by problems customers had in getting financing, he said.

The company’s preferred lender, MetLife Inc. (MET), announced early this year that it would shut its mortgage origination operation. This month, KB Home reached an agreement making Nationstar Mortgage Holdings Inc. its new preferred lender.

The builder’s strategy of withdrawing from some markets such as South Carolina and making margins a priority over the pace of sales also hurt net orders, Mezger said. KB Home’s average sale price increased 6 percent in the first quarter from a year earlier to $219,000, according to the statement.

“There is no question that things are better, but we continue to maintain that it will take some time for markets to fully recover,” Mezger said on the call.

‘Disastrous’ results

Optimism among homebuilders had been improving in recent months. A National Association of Home Builders/Wells Fargo measure of confidence held in March at the highest level since June 2007 as sales expectations climbed. Housing starts fell 1.1 percent in February from a three-year high while building permits increased to a 717,000 annual pace, the most since October 2008, Commerce Department figures showed March 20.

“No matter how one looks at KBH’s first-quarter results, they were disastrous,” Stephen East, Paul Przybylski and Truman Patterson, analysts with ISI Group LLC, said in a note to clients. “In a recovering market, the results did an absolutely ugly U-turn.”

They expected KB Home’s orders to increase 42 percent, according to the note.

Revenue increased 29 percent in the first quarter to $254.6 million. KB Home delivered 1,150 houses, up 21 percent from the first quarter of 2011.

The year-earlier results included a $53.7 million impairment and a loss on a loan guaranty of $22.8 million, both related to the company’s investment in a project near Las Vegas.

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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