KB Home (KBH) showed a narrower loss of $1.4 million or 2 cents per share in its third quarter ended August 31, 2010 compared with $66 million or 87 cents per share in the year-ago quarter. This is also an improvement from the Zacks Consensus Estimate of a loss of 15 cents per share for the quarter.
The better results were mainly attributable to higher housing revenues and lower selling, general and administrative expenses during the quarter.
Total revenues grew 9% to $501 million, mainly driven by a 9% rise in housing revenues to $496.9 million. The increase in housing revenues reflected a 4% rise in the number of homes delivered to 2,320 units and a 6% rise in the average selling price to $214,200. The company’s land sale revenues dipped 9.5% to $1.9 million.
Meanwhile, net orders went down 39% to 1,314 homes. As a percentage of beginning backlog, the company’s cancellation rate went up by 1 percentage point to 21% in the quarter. As of August 31, 2010, the company’s backlog totaled 2,169 homes, a 42% decline from 3,722 homes in backlog as of August 31, 2009.
Potential future housing revenues in backlog fell 38% to $455.3 million as of August 31, 2010 from $734.1 million as of August 31, 2009, primarily due to the lower number of homes in backlog.
The company’s homebuilding business (including housing and land) posted an operating income of $8.4 million in the quarter, an improvement of $50.5 million from an operating loss of $42.1 million in the third quarter of fiscal 2009. It was the first time in nearly four years that the company’s homebuilding business generated quarterly operating income.
The housing gross margin (excluding inventory impairment and land option contract abandonment charges) increased by 3.6 percentage points to 18.2% from 14.6% in the year-ago quarter. Land business produced break-even results during the quarter, compared to a loss of $8.4 million in the third quarter of fiscal 2009, which included $8.5 million of impairment charges related to planned future land sales.
Selling, general and administrative (SG&A) expenses slipped 6% to $78.6 million from $83.9 million in the year-ago period. This reflected the positive impact of cost-saving initiatives adopted by the company and income associated with long-term, cash-settled compensation tied to the company’s stock price, partially offset by higher legal and advertising expenses.
As a percentage of housing revenues, the company’s SG&A expenses improved by 2.7 percentage points to 15.8% from 18.5% in the 2009 quarter.
The Financial Services business, which include the KB Home’s equity interest in an unconsolidated mortgage banking joint venture, recorded a 4% rise in revenues to $2.2 million. The segment reported a pretax income of $2.4 million in the quarter versus $5.6 million in the year-earlier quarter.
KB Home had cash and cash equivalents of $919.9 million and total debt of $1.8 billion as of August 31, 2010. The debt-to-capitalization ratio worsened to 75% in the same period from 72% as of November 30, 2009.
KB Home, a Zacks #3 Rank stock, is based in Los Angeles, California. The company builds various types of homes, including attached and detached single-family homes, town homes and condominiums, designed primarily for first-time, first move-up, and adult buyers. It also offers mortgage services in a joint venture with Countrywide KB Home Loans. In addition, the company, through its subsidiary, KB Home Mortgage Company, provides title and insurance services to its homebuyers.
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