In response to weak first quarter 2012 results announced in late March this year, KB Home (KBH) reduced its dividend for the second quarter. The company declared a dividend of $0.025 per share, down from the company’s quarterly dividend of $0.625 per share. The dividend will be paid on May 17 to shareholders whose names appear in the record books on May 3, 2012.
KB Home recently reported lower-than-expected first quarter results. The company reported adjusted net loss per share of 51 cents in the first quarter of fiscal 2012, wider than the adjusted loss of 47 per share in the year-ago quarter. Lower revenues and gross margins led to the wider loss in the quarter. The loss was far more than the Zacks Consensus Estimate of a loss of 23 cents per share.
Total revenue increased 29% year over year to $254.6 million propelled by housing revenues. Total revenue was however much below the Zacks Consensus Estimate of $324.0 million as well as the prior-quarter revenue of $479.9 million due to declining net orders. Housing revenue increased 29% over the prior-year quarter to $251.9 million due to a 21% increase in the number of homes delivered to 1,150 and a 6% rise in average selling price to $219,000. Housing revenues, homes delivered and average selling prices however declined significantly from the preceding quarter. Net orders declined 8% in the first quarter of 2012 due to a sharp increase in cancellations. The company’s backlog totaled 2,203 homes as of February 29, 2012, up 30% from 1,689 homes as of February 28, 2011.
The housing market has been fragile since the last few years. The downturn in the housing industry – aggravated by an overall weak economic condition, high unemployment rates, reduced credit availability, rising interest rates and lack of incentives like tax-credit for homebuyers – has been weighing down on homebuilders like KB Home and its compatriots DR Horton, Inc. (DHI), Pulte Group (PHM) and Lennar Corporation (LEN). Other than that, the housing market became extremely aggressive and KB Home’s new homes faced tough competition from housing alternatives, including resale homes, foreclosed homes, short sale homes and rental housing. Increased availability of housing alternatives has kept the company’s earnings under pressure.
Management believes that the housing market is slowly stabilizing with increase in employment rates and higher consumer confidence. Management believes that the housing recovery combined with the company’s strategic initiatives (like overhead reduction, margin expansion, and land investments towards higher priced, better located communities) and the Nationstar deal will help it to achieve profitability in 2012.
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