(KB Home story updated for analyst commentary)

LOS ANGELES (

TheStreet

) --

KB Home

(KBH) - Get Report

didn't narrow its second-quarter loss as much as the Street expected, and its shares are trading down by more than 5% on Friday morning.

It was a mixed report from KB Home, with its loss narrowing to 40 cents a share, but not meeting the Street consensus of a narrowing to 30 cents earnings per share.

KB Home revenue fell 3% to $374.1 million, from $384.5 million in the first quarter 2009.

KB Home CEO Jeffrey Mezger referred to a mix of positive and negative factors in the housing market in the earnings statement, and that seems to be the case with homebuilder stocks investor sentiment, too. The homebuilder stocks have already suffered huge share declines over the past month.

KB Home net orders declined 23% versus the year earlier period, reflecting the dropoff in May after the expiration of the homebuyer tax credit. Additionally, KB Home had benefited in a limited low-end market turnaround last year before competition heated up. The homebuilder noted in its earnings that average sales price dropped 4% to $207,900. Second quarter net orders were up 17% sequentially from the first quarter of 2010, but that included the two months of frenzied homebuyer tax credit activity in March and April.

Some analysts were most concerned by the gross margin drop at KB Home.

Other negative homebuilding data released this week didn't trigger a homebuilder selloff because of the extent to which the shares have already suffered. New home sales were at a 47-year low and

Lennar

(LEN) - Get Report

, which reported earnings on Thursday, fell far short of Street consensus on new orders, however, the bad news has largely been baked into models for the homebuilders.

Lennar reported a profit on Thursday and a gross margin improvement, but a disappointing new orders number.

KB Home's order drop, coupled with its gross margin dip, was exacting a bigger toll on its shares on Friday. Ticonderoga Securities noted that it was the second consecutive gross margin dip for KB Home.

Lennar shares were down more on Friday morning after the KB Home report than they were on Thursday when it reported.

Stifel Nicolaus analyst Mike Widner said in a note on Friday morning that there were few positives in the KB Home earnings, other than the lack of asset impairments. Stifel Nicolaus was most concerned about the order shortfall -- given that KB Home would have benefited in March and April from the tax credit. The Stifel analyst also wrote that the earnings miss was driven by an increase in SG&A expenses, and that was a point of concern, too, as Lennar, on the other hand, has been improving its operating and gross margin.

There was a sense among some analysts, as has been the case with the recent housing market data and earnings, that the consensus numbers do not reflect the true situation of these homebuilder stocks, and investors have already built worse assumptions into the share prices-- although the KB Home report was certainly a much more disappointing report that Lennar's Thursday earnings, where a major miss of the consensus new order number was not a driver for a major selloff in its shares.

As with the Lennar report, investors and analysts are interested in what KB Home has to say about the coming months. The homebuilders are presenting the optimistic view that the May disaster -- as home sales were sucked forward due to the end of the homebuyer tax credit -- won't turn into a longer-term trend.

"While our net orders were down for the quarter compared to a year ago due to fewer active communities, general economic weakness and the expiration of the federal homebuyer tax credit, our net orders were up sequentially from this year's first quarter and were solid on a per community basis. We believe this bodes well for our ability to generate future revenue growth as we expand our community count," the KB Home CEO said.

There was no timeline given in the comment from the KB Home CEO -- though the homebuilder has previously said it expects to return to profitability in the second half of the year. Lennar had said yesterday in its earnings that it expected improvements in the second half of 2010.

The KB Home CEO comments were focused more on general themes, including opportunistic land acquisitions and the goal of achieving sustained profitability.

Both Lennar and KB Home reported earnings without any remaining asset impairment charges in the second quarter.

Stifel Nicolaus' Widner noted that even before its decline on Friday, KB Home was "among the more heavily discounted names in the group and on balance believe the group may be over reacting to the downside based on poor recent industry data."

A bottom may have been reached -- especially after the heavy selling in the past month -- and many of the homebuilders are trading at or near book value, but it will take time to see whether or not the big institutions who represent the majority of homebuilder share owners are bullish on the immediate outlook for these stocks.

-- Reported by Eric Rosenbaum in New York.

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