Fitch Ratings lowered its outlook on KB Home (KBH), from stable to negative, citing the homebuilder’s overexposure to the entry-level housing market as well as its not-so-great performance as compared to its peers. However, the rating agency maintained its ratings on the company.
The housing market is still struggling to regain its historical pace but unfavorable macroeconomic factors, mainly rising unemployment, absence of tax credits, tough lending standards and falling home prices, have forced many potential homebuyers to move to the sidelines.
In healthy conditions, first-time buyers make up 40% to 45% of all purchasers in the housing market. They generally play a crucial role in buying the entry-level homes, thereby enabling the previous owners of those homes to opt for more expensive homes. But in the current depressed situation, the trend of home buying is much low while the rates of cancellation are quite high.
KB Home ended the first quarter of fiscal 2011 with revenues of $196.9 million, down 25% from the year-ago level. The company’s adjusted net loss was $38 million or 49 cents per share during the quarter compared with $54.7 million or 71 cents per share in the previous year.
The first quarter results were negatively affected by the involuntary bankruptcy of KB Home-South Edge LLC joint venture, which resulted in a $54 million charge to write off its investment as well as a $22.8 million charge for other bankruptcy-related items.
However, KB Home has undertaken a number of efforts to improve its performance in the coming years. One of the significant approaches is its partnership with SunPower Corp. (SPWRA). SunPower will supply KB Home the highest available solar panels and systems employing the most efficient solar technology available in the market.
The new initiative taken by KB Home is intended to cut down the monthly energy bills of the homeowners, thereby reducing the overall cost of homeownership. Alongside, the program will also benefit the environment as the solar panel system is considered a reliable alternative to electricity sourced from non-renewable fossil fuels.
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