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Big homebuilders signal more housing woe

In a sign of a deepening housing slump, two major homebuilders on Tuesday reported steep declines in new orders and weaker fourth-quarter results.
/ Source: The Associated Press

In a sign of a deepening housing slump, two major homebuilders on Tuesday reported steep declines in new orders and weaker fourth-quarter results.

Luxury home builder Toll Brothers Inc. of Horsham, Pa., said home-building revenue fell by 10 percent and signed contracts were down by 55 percent compared with a year ago. The company, which released its quarterly outlook ahead of earnings, also said it will incur a hefty charge against profits as it pares down the number of lots it controls.

Beazer Homes USA Inc. of Atlanta reported a 44 percent decline in profit as higher revenue was offset by squeezed margins. The company said there was “significant” discounting in most markets.

New orders for Beazer fell by 58 percent to 2,064 homes from 4,937 last year, as the housing market continued to slow. It has cut 1,000 jobs, or 25 percent of its workforce.

“We continue to look for signs that a recovery is imminent but can’t yet say that one is in sight,” Toll Brothers Chief Executive Robert Toll said in a statement. “It is worth noting that, atypically, this housing market is weak in an environment of low interest rates and low unemployment.”

The average rate on the 30-year, fixed rate mortgage was 6.31 percent last week, according to Freddie Mac. The rate has fallen from 6.8 percent in July.

In the quarter, Toll Brothers’ home-building revenue fell to $1.81 billion from last year’s $2 billion. Signed contracts — a sign of future business — fell to $710 million from last year’s record $1.59 billion. The housing backlog declined as well, by 25 percent to $4.5 billion.

Toll Brothers said its fourth quarter was hurt by an above-average 585 cancellations. One-fourth of the quarter’s cancellations came from Orlando and Northern California.

The Southeast region, comprising Florida and the Carolinas, saw the biggest drop in signed contracts, down 78 percent to 101 in the quarter. It was followed by the Southwest — Arizona, Colorado, Nevada and Texas — down 62 percent to 163 contracts.

Toll Brothers also pared back the number of lots it controls by about 6,500. As such, it expects to take write-downs of between $50 million and $100 million on lands owned and on option.

The company expects earnings to be reduced by 18 to 36 cents per share as a result.

Toll Brothers now expects to deliver between 6,300 and 7,300 homes for fiscal 2007, down from its prior outlook of 7,000 to 8,000 deliveries.

For the first quarter, the homebuilder expects to deliver between 1,500 and 1,800 homes.

Beazer’s fourth-quarter net income fell to $91.9 million, or $2.19 per share, from $164.4 million, or $3.61 per share, a year ago. Revenue climbed 4 percent to $1.88 billion.

On average, analysts surveyed by Thomson Financial were looking for profits of $1.65 per share on sales of $1.51 billion.

Beazer said it closed 6,411 homes during the quarter, up about 1 percent from the prior year as decreased closings in Florida and the Mid-Atlantic were offset by increases in the West, Southeast and other homebuilding segments.

The company previously said it expected 2007 home closings of 12,000 to 13,500, and sees new orders in the range of 12,000 to 14,000 for this period.

If Beazer closes on 13,500 homes, it is forecasting 2007 earnings per share of about $3.65 — slightly below analysts’ current consensus estimate of $3.69 per share.