This bug was fixed in the package livecd-rootfs - 2.408.38

---------------
livecd-rootfs (2.408.38) xenial; urgency=medium

  * ubuntu-cpc: Handle a pre-existing /lib/modules in 030-root-tarball.hook
    (LP: #1797170).

 -- Daniel Watkins <[email protected]>  Wed, 10 Oct 2018 11:55:30
-0400

** Changed in: livecd-rootfs (Ubuntu Xenial)
       Status: Fix Committed => Fix Released

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https://bugs.launchpad.net/bugs/1797170

Title:
  xenial cloud image builds fail due to /lib/modules being present

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