It seems that Jeffrey Mezger, CEO of KB Homes,  never saw the housing slowdown occurring. That is the reasoning given for their disappointing earnings. Many have said that the large builders are stuck in the projects they have on  the table or started, but I can not truly understand the need to go racing off the cliff. Has anyone ever told the builders that they are in a cyclical business and plan accordingly?

The building community has been caught overextending and being over optimistic in their projections. Instead of working towards building a company that is ahead of market trends, maybe missing out on some potential profits and positioning the company to be the strongest in a weak market would have  made great sense.

But these CEO’s are so focused on hitting their quarterly numbers that they fail to see the forest through the trees.

The Los Angeles-based home builder (KBH) posted a loss from continuing operations of $174.2 million, or $2.26 a share, for the three months ended May 31, compared with income from continuing operations of $184.4 million, or $2.20 a share, in the year-ago second quarter.
The results “reflect the current oversupply of new and resale housing inventory, a difficult situation compounded by aggressive competition and continued weak demand,” said KB Home Chief Executive Jeffrey Mezger in the earnings release.
Some analysts say rising home inventories and investments in risky lands will continue to pressure home builders’ cash flows.
“Housing affordability challenges and tighter credit conditions in the subprime and near-prime mortgage market have also exacerbated current market dynamics, keeping prospective buyers out of the market, slowing the absorption of excess supply and further delaying a housing market recovery,” Mezger noted.
The company said it took a pretax charge of $308.2 million against results for the latest quarter, covering inventory and joint-venture impairments as well as abandonment of land options.

UPDATE: KB Home Blames Quarterly Red Ink On Housing Oversupply, Charges.

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