KB Home stung by weak home orders and charges

KB Home's shares tumbled more than 15 percent on Wednesday, after the homebuilder reported its second-quarter loss more than doubled amid lackluster sales and higher charges, and the company signaled it is considering tapping the capital markets to raise cash.

The company said it might consider selling stock, bonds or obtaining a line of credit because it anticipates having to pay $100 million to cover a bond maturity later this year in addition to the more than $200 million the builder has agreed to pay to settle a joint venture dispute.

Management stressed that the company has enough cash at this point and still has some time to evaluate its options.

That assurance did little to offset how investors sized up KB Home's worse-than-expected results. Shares ended the regular session down $1.84 to $10.08 and slipped another penny in aftermarket trading.

KB's new home orders for the March to May period, coinciding with the spring home-selling season, fell 11 percent compared with a year earlier, when federal tax incentives helped boost sales. Home deliveries, a key source of revenue, fell 29 percent.

CEO and President Jeffrey Mezger said that a housing turnaround remains hampered by consumers' concerns over jobs and the U.S. economy.

"Many of the recent national reports on housing activity reflect today's soft housing environment and illustrate that we have a way to go on the road toward a housing recovery," Mezger said.

U.S. sales of new homes fell 2.1 percent in May to a seasonally adjusted annual rate of 319,000 homes. Sales of new homes had increased the prior two months, but remain well below the 700,000 a month economists consider healthy.

And consumer confidence hit a seven-month low this month on continuing worries about high unemployment and stagnating wages.

KB's sales trends for the quarter echoed those of other large homebuilders this year. Many saw a seasonal bump in customer traffic this spring, the traditional peak period for home sales, but the stepped-up interest didn't translate into robust sales.

One factor is first-time buyers haven't been turning out like they did last year, when the tax credits were in effect. That segment of the market makes up more than half of KB's customers.

First-time buyers also tend to have a harder time qualifying for home loans, amid tightened lending standards. And many of those who qualify for financing have opted to buy cheaper, resale homes.

"This is a big negative, not just for KB, but a big negative for the sector," said Demir Gjokaj, a senior analyst at ITG Investment Research in New York. "It shows us that, without a doubt, the first-time homebuyer is not back."

Buyers who do decide to purchase a home often are taking months, not days or weeks, to take the plunge.

"They are exploring all the options and they are nervous," Mezger said.

Still, some markets, including parts of coastal California and Texas, are showing signs of stability, with home prices remaining flat or even rising, Mezger said.

Assuming those markets and others remain stable, KB expects it will be profitable in the fourth quarter.

KB Home, based in Los Angeles, said it lost $68.5 million, or 89 cents a 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 related to South Edge LLC, a joint venture in Las Vegas. Earlier this month, the builder reached a settlement deal with JPMorgan Chase & Co. and several other large banks that made loans to the venture.

KB's quarterly 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 per share on roughly $291.4 million in revenue.

KB Home builds homes in 12 states and was ranked the fifth-largest homebuilder in the nation last year, by closings.