KB Home (KBH) is living the homebuilder's current nightmare: buyers are canceling, property values are falling, and orders are down. The Los Angeles based company said Feb. 13 that it lost money during recent months -- but investors had expected worse.
The homebuilder lost $49.6 million during the quarter ended Nov. 30, compared to a $304.4 million profit during the same period of 2005. "Last year was clearly a turning point for the U.S. housing market compared to the record growth of the past several years," CEO Jeffrey Mezger said in a press release. "Net income and earnings per share dropped sharply in the face of increasingly difficult market conditions."
People had been buying housing at a frenzied pace during the low interest rate environment of the 1990s and early 2000s. Now as borrowing rates began to inch up last year, housing prices have begun to fall in many U.S. markets.
Mezger and his team have had to take hits during the recent quarter on things like their inventory. At the same time their orders are dwindling and buyers are nixing existing deals. KB Home's net orders fell 38% year over year to 6,059 during the quarter. The number of orders that remain to be filled totaled 17,384 units at November 30, representing potential future housing revenues of $4.43 billion, a 34% decrease from the same period of 2005. And KB Home's cancellation rate was 48%, up from 31% in the fourth quarter of 2005.
Meanwhile the company continues facing other problems of its own: an investigation found that KB Home used the wrong dates for granting stock options between 1998 and 2005. The company had to announce in November that its CEO Bruce Karatz would be leaving and has yet to file restated financial results for the quarter ended August 31 and year ended Nov. 30.
Still, it actually could have been worse. KB Home lost 64 cents per share during the quarter, while the mean analyst forecast had been for a $1.14 per share loss, according to the San Francisco research firm StarMine, which aggregates data from Thomson Financial. Investors bid up the stock 2.7% to $53.33 per share in afternoon trading on the New York Stock Exchange.