One by one, some of the nation’s largest homebuilders have seen quarterly earnings get crushed by the slump in the housing market.
Lennar Corp. became the latest victim Tuesday, with a 73 percent plunge in first-quarter earnings and predictions that it is going to fall short of 2007 earnings goals. Since the start of February, homebuilders KB Homes, Hovanian Enterprises Inc. and Toll Brothers Inc. all reported falling profits.
Stuart Miller, Lennar’s president and chief executive, said a lack of demand for the winter-spring buying season, new problems with subprime lenders and higher-than-desired land costs hurt profits.
The company reported drops in new home orders and building starts, and that Florida contained some of the slowest new home markets. Lennar shares fell 23 cents, or less than 1 percent, to $44.31 in afternoon trading on the New York Stock Exchange, after decreasing almost 3 percent earlier in the day.
“These are difficult times for the homebuilding industry,” Miller said on a conference call. “The reality is that market conditions are still challenging at best and in some markets continuing to deteriorate.”
Miami-based Lennar reported that net income for the quarter ended Feb. 28 fell to $68.6 million, or 43 cents per share, from $258.1 million, or $1.58 per share, a year earlier. The results were in line with expectations of analysts surveyed by Thomson Financial.
Revenue declined 14 percent to $2.79 billion from $3.24 billion a year ago, topping Wall Street’s estimate of $2.49 billion.
Lennar’s results come after the U.S. Census Bureau reported Monday that builders sold 848,000 single-family homes in February, 18.3 percent fewer than the same month last year and 3.9 percent fewer than January of this year. On Tuesday, a Standard & Poor’s housing index showed that prices of single-family homes across the nation fell in January from year ago.
Lennar said it was trying to raise profit margins in the face of higher buyer incentives that were implemented in attempts to move inventory. The builder was continuing to pursue debt and cost reductions and savings in selling, general and administrative expenses. Miller said Lennar was only purchasing land on a “very, very limited” basis.
Miller also addressed the troubled subprime lending market and the future of mortgage rates. Concerns about problems facing many lenders in the subprime market, designed for borrowers with weak credit ratings, contributed to a 416-point drop in the Dow Jones industrial average on Feb. 27.
In January, Miller laid out a yearly earnings goal of $3.69 per share in hopes that the job market would stay strong, the economy would continue to be healthy and the new-home market would demonstrate “traditional, seasonal improvement.”
On Tuesday, Miller said, “Given the state of the market, we do not expect to achieve our previously stated 2007 earnings goal, and we are not comfortable providing a new earnings goal at this time.”
New home orders were down 27 percent year-over-year, to 7,132, while housing starts were down 38 percent year over year. Lennar said its cancellation rate was 29 percent.
Orders fell 34 percent in Lennar’s central segment, which contains Arizona, Colorado and Texas, and 33 percent in the east, which includes Florida, Maryland, New Jersey and Virginia. Among the slowest markets were southwest Florida and the area north of Palm Beach County, but Orlando was doing fairly well, the company said.
Orders dropped more than expected despite higher incentives, and the company may not have seen the worst of troubles stemming from the tough lending environment, Banc of America Securities analyst Daniel Oppenheim said in a research note.
“Our sense is that the tougher lending environment would have only started at the end of the quarter so that the impact will be more significant next quarter,” the research note said.
Meanwhile, JPMorgan analyst Michael Rehaut wrote in his research note that the order decline was not believed to represent “another leg down for the industry, but more of a rebalancing approach towards margins.”
Revenue from home sales decreased 10 percent to $2.6 billion in the first quarter from $2.9 billion in the same period last year, Lennar said. Revenue was lower primarily due to a 4 percent decrease in the number of home deliveries and a 7 percent decrease in the average sales price of homes delivered.
New home deliveries were lower primarily because of slowness in the company’s central and west segments, compared to 2006. The average sales price of delivered homes decreased to $303,000 in the first quarter of 2007 from $326,000 in the same period last year, and incentives of about $45,500 per delivered home was one of the reasons, Lennar said.
Lennar also reported a 51 percent decrease in the value of backlogged homes from the year-ago quarter, from $7.07 million to $3.45 million.
The company also said its LandSource joint venture with MW Housing Partners resulted in a $700 million cash distribution.