2nd UPDATE: KB Home 1Q Loss Widens As Revenue, Orders Plunge

Builder KB Home's (KBH) fiscal first-quarter loss widened sharply as plunging orders fueled a steep revenue drop and charges weighed on the bottom line.

Shares plunged 7.7% to $11.26 in early trading. The results weighed on the sector, with no major player seeing a gain; Ryland Group Inc.(RYL) fell 3.2%, while Beazer Homes USA (BZH) lost 2.2%.

Like most builders, Los Angeles-based KB Home faced a tough year-over-year comparison because the federal tax credit that expired in early 2010 pulled demand forward. Since then, the industry has seen sales fall off dramatically. In the latest period, KB Home's deliveries tumbled 28%, while net orders dropped 32%.

The order decline is "likely indicative of a poor start to the spring selling season," wrote Robert C. Wetenhall, a home-builder analyst with RBC Capital Markets.

Still, builders say they're optimistic because consumer visits to model homes and sales centers have picked up recently.

"We are encouraged by the higher traffic we experienced in the first quarter compared to a year ago," Chief Executive Jeff Mezger said in the pre-market release.

For the quarter ended Feb. 28, KB Home reported a loss of $114.5 million, or $1.49 a share, compared with a year-earlier loss of $54.7 million, or 71 cents a share.

The results included a joint-venture impairment charge of $53.7 million and a loss on loan guaranty of $22.8 million related its investment in South Edge LLC. During the housing boom, several builders teamed together to develop a large master-planned community in Las Vegas, but that project has stalled.

Revenue plunged 25% to $196.9 million.

Analysts polled by Thomson Reuters most recently forecast a loss of 27 cents on $224 million in revenue.

Adjusted housing gross margin, which excludes items such as inventory impairment, narrowed to 13.4% from 18.8%.

At the quarter's end, backlog was 38% lower than a year earlier at 1,689 homes. The average selling price rose 4% and the cancellation rate jumped to 39% from 26%, indicating more consumers are having difficulty qualifying for mortgages.

The "operational results were shockingly disappointing," wrote Ticonderoga Securities analyst Stephen East in a client note. "There are no excuses to be had here. The operations were bad top to bottom."

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com

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