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Lennar Posts Bigger-Than-Expected Loss, But Outlook Is Upbeat

Lennar, one of the nation's largest home builders, reported a sharp fourth-quarter loss after writing down the value of its property investments amid a weakening housing market.

But the Miami-based company also said that earnings in the coming year might be substantially better than the market currently expects, which pushed the stock higher.

Lennar said it had a loss of $195.6 million, or $1.24 a share, for its fiscal fourth quarter, which ended in November, compared with a profit of $581 million, or $3.54 a share in the year ago period. The quarterly loss included valuation adjustments of $382.8 million and write-offs for land options and pre-acquisition costs of $111.1 million.

Analysts surveyed by Thomson First Call predicted a loss of $1.11 per share.

In a statement, Stuart Miller, Lennar's chief executive, said tough market conditions made it difficult to provide a 2007 earnings goal and he expects "lower profitability" in the first half of the year.

Outlook Positive

Even so, he predicted that if "the current environment of strong employment, low interest rates and a healthy economy continues, and the market for new homes demonstrates traditional, seasonal improvement, we will meet or exceed our 2006 earnings of $3.69 per share."

Analysts expect the company to report earnings of $2.61 per share for fiscal 2007, according to Thomson Financial.

The unexpectedly upbeat outlook from a company that less than two weeks ago slashed its fourth-quarter outlook, came one day after rivals Centex and KB Home both took charges to reduce their land positions in a sign the weakest U.S. housing market in decades may not yet have bottomed.

Lennar's fourth quarter revenue fell 15.2% from the year-ago period to $4.27 billion, topping expectations for revenue of $4.17 billion.

"As we noted in our pre-earnings release, market conditions have remained depressed through the end of our fourth quarter," Miller said in a statement.

As the company said earlier in January, it sold 14,006 homes during the quarter, down from 2.8% from a year earlier. New orders fell 6% to 9,606, and the backlog of homes on order dropped 42% to $4 billion at the end of November from a year earlier.

Gross Margins Fall

Gross margins on home sales, excluding inventory valuation adjustments, fell to 14.4% in the fourth quarter from 27% in the year-earlier period.

Lennar also said deliveries of homes will decline in excess of 20% in 2007.

In recent months, falling prices and rising cancellations have led home builders to repeatedly slash their forecasts as many buyers either walk away from contracts or press for additional incentives before signing.

"We are navigating through one of the most challenging housing environments in the past 25 years," Tim Eller, Centex's chief executive, said in a statement.

Separately, rival KB Home said it would record noncash charges of $88 million in the fourth quarter for abandoning certain land options contracts and $255 million for inventory
impairments.

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