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Decline In Home Prices Socks Builder Lennar

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The Associated Press

Published: September 26, 2007

MIAMI - Tough times in the national housing market led to a company record loss of $513.9 million for Lennar Corp. in the third quarter, with drops in sales prices and home deliveries compounded by heavy charges to write down land values. Its shares fell more than 4 percent in afternoon trading.

One of the nation's largest home builders said Tuesday that it had cut its work force by 35 percent this year and that it expects to pare more employees soon.

'These continue to be very difficult times for the home-building industry,' Lennar CEO Stuart Miller said.

It was the biggest quarterly loss in the 53-year history of Lennar. Miller said consumer confidence in the housing market is low.

Losses for the third quarter ended Aug. 31 amounted to $3.25 per share compared with a profit of $206.7 million, or $1.30 per share, in the 2006 period. The results included a charge of $3.33 per share related to valuation adjustments and writing off land option deposits, among other items.

Revenue fell 44 percent to $2.34 billion from $4.18 billion a year ago, primarily due to a 41 percent drop in the number of home deliveries and a 6 percent decrease in the average sales price of homes delivered in 2007.

Analysts surveyed by Thomson Financial had expected Lennar to post a loss of 55 cents per share on revenue of $2.39 billion. Wall Street estimates typically exclude one-time charges and gains, and predictions for home builders have varied wildly recently.

Without the impairments and all other charges, Lennar would have posted earnings of 8 cents per share in the quarter. Some analysts, however, said they were surprised by the size of the impairment charges and the dismal housing orders from Lennar.

Lennar shares lost 96 cents to close at $23.22.
Banc of America Securities analyst Daniel Oppenheim said the $848 million in total adjustments and charges were likely a function of price declines seen throughout the housing market.

'We expect significant impairments across the industry in 3Q,' Oppenheim wrote in an analyst's note.
National housing statistics also released Tuesday revealed just how dire the situation has become in the housing sector for giants like Lennar.

U.S. home price declines accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index. An hour after the S&P report was released, the National Association of Realtors reported that sales of existing homes declined for a sixth straight month in August, pushing activity to the lowest point in five years.

In June, Lennar warned that it would likely post a loss through at least the third quarter but did not offer specific guidance. The home builder has been lowering prices and offering higher incentives to cut inventory, but that has led to slimmer profit margins. Lennar also was cutting back on land purchases, while construction starts were down 62 percent year-over-year, Miller said.

Turmoil in credit markets has reflected new worries about rising defaults in subprime mortgages.

'Overall, the supply of homes to sell continues to climb in many of our markets, and we're not yet able to get a good reading on how quickly this inventory will be absorbed or whether it will continue to increase as foreclosures increase and add to inventory,' Miller said.

For the first nine months, Lennar reported a loss of $689.4 million, or $4.37 per share, compared with earnings of $789.5 million, or $4.88 share, over the same period in 2006.

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