KB Home of Los Angeles, a home builder that targets first-time buyers, reported a narrower fiscal second-quarter loss Friday as the company cut expenses faster than revenue dropped.

The net loss in the period that ended May 31 was $78.4 million, or $1.03 a share, compared with a loss of $255.9 million, or $3.30, a year earlier, KB Home said.

The company was expected to lose 63 cents a share, according to the median estimate of 13 analysts.

Revenue fell 40%, to $384.5 million, and the company said it cut its expenses in half.

Industrywide sales of new homes fell in May as builder discounts failed to keep pace with the foreclosure-driven decline in resale properties.

Sales dropped 0.6% from the month before, to an annual pace of 342,000, the Commerce Department said last week.

"Prevailing recessionary economic conditions weighed heavily on the home building industry and on our operations during the second quarter," KB Home Chief Executive Officer Jeffrey Mezger said.

"Although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating," he said.

Builders including KB Home are competing with a glut of repossessed homes up for sale. KB Home is pushing its Open Series houses, which are smaller and less expensive than the company's older designs.

The builder's net orders dropped 31%, to 2,910 homes, from a year earlier. They rose from the previous quarter by 59%.

KB Home reported a backlog of 3,804 homes, reflecting potential future revenue of $796.9 million, compared with a backlog of 6,233 homes a year ago, then estimated as being worth $1.47 billion.

About 20% of signed contracts were canceled during the quarter, compared with 27% a year earlier, the company said.

Its average sales price declined 4.6%, to $216,200.

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