KB Homes, Inc. (KBH), the fifth largest U.S. homebuilder, continues to be cautious about the housing market even as net orders improved and its cancellation rate dropped compared to a year ago.

The company reported third quarter results that missed on the Zacks Consensus Estimate by 29.85%. Earnings per share was a loss of 87 cents, well under the Zacks Consensus Estimate of a loss of 67 cents.

Revenues fell 33% to $458.5 million from $681.6 million in the year ago quarter. The majority of the decrease was due to lower housing revenues which was the result of a 20% decline in homes delivered to 2,240 and a decline of 15% in the average selling price over the third quarter of 2008 to $202,800.

The backlog also fell to 3,722 homes as of Aug 31 from 4,774 homes a year ago.

In some positive news, net orders rose 62% to 2,158 from 1,329 in the year ago quarter and all of the company’s geographic regions saw order growth. The cancellation rate as a percentage of gross orders also saw improvement in the third quarter, with only 27% canceling compared to 51% in the year ago quarter.

KB Homes is going after the first time home buyer, which is one area of the market that appears to be improving. It started a value priced product line called “The Open Series” which the company said was a primary contributor to the year over year order growth in the quarter.

Unlike Lennar (LEN), which said earlier this week it expects to return to profitability in 2010, the company said it has more work to do to return to profitability but that it was making progress towards that goal. KB Homes didn’t give any timeline for when it might be achieved.

Economic conditions continue to work against the home builders. KB Homes said the housing market overall remains in a transition due to the challenging economic conditions.

“While tentative indications are that some negative economic trends are slowing or leveling out to varying degrees in certain markets, the ongoing impact of and the potential for increased foreclosures and mortgage delinquencies, higher unemployment, tighter credit standards, and relatively weak consumer confidence make the timing and extent of a sustained rebound still uncertain,” said Jeff Mezger, president and chief executive officer.

 

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