It's an all-too-common manifestation of the old-fashioned domino effect of late: You want to buy a new home, and so you plunk money down on it -- even though the "it" may still consist of blueprints and pretty renderings. And then you or your realtor raises a "for sale" sign in front of your existing home. Then, in today's market, most likely you wait, and you wait, and you wait ...
But other numbers didn't represent quite the same salutary effect. For instance, KB's order cancellation rate for the quarter was 48%, up from 31% a year earlier, but -- and the company seemed genuinely pleased to make this comparison -- down from 54% for the quarter ended in August. Cancellations often occur when buyers who are waiting finally conclude that their existing home is unlikely to sell in time for them to close on the new one.
In part because of buyers' cancellations, KB Home's backlog of unclosed homes at the end of the quarter was 17,384 units, representing potential future revenues of $4.43 billion for the company. That figure also seemed to please the company, as it represented a decline from the $6.76 billion backlog at the end of August.
But also key in the quarter was a total of $343.3 million in non-cash charges that were taken for inventory, joint venture, and land writedowns. As a result, KB Home incurred a net loss of $49.6 million, or $0.64 per diluted share, in the quarter. The loss compared with earnings of $304.4 million, or $3.44 per share, in the last quarter of fiscal 2005.
KB Home follows a host of other homebuilders that recently reported soft quarterly results. Indeed, I'd offer that there is a unanimity of softness among the builders. The condition has plagued Centex
When the malaise will end is anyone's guess. As I have told Fools in the past, the prices of the homebuilders' shares and the current state of housing statistics frequently are not in alignment, and just as there have been lower results for the latest quarter, there's also been an essentially across-the-board strengthening of the builders' share prices since their July nadir. On that basis, I'd urge Fools with an interest in the sector and with a somewhat longer-than-normal investment horizon to continue to examine Centex, Toll, and Ryland Group
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