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Pulte Posts Loss with $1 Billion in Writedowns

Reuters
Thursday, 25 Oct 2007 | 7:09 AM ET

Some of the biggest U.S. home builders reported large quarterly losses Wednesday on big charges for lower property values and said orders continued to crumble, underlining the weaker U.S. housing market.

Pulte Homes, the No. 3 U.S. home builder, posted a quarterly loss Wednesday, on charges topping $1 billion and said orders fell 37 percent. The billion-or-so charge puts Pulte's write-downs and write-offs in the same ballpark of Centex, the No. 4 U.S. home builder, and D.R. Horton, the largest U.S. home builder, which reported a billion-plus charge last quarter.

Wednesday, M.D.C. Holdings, the No. 10 U.S. home builder posted a net loss of $155.4 million, or $3.40 a share, after posting charges of about $254 million. At No. 8, Ryland Group reported a loss of $54.7 million, or $1.30 per share, after charges of $128.1 million.

Pulte reported a third-quarter net loss of $787.9 million, or $3.12 a share, compared with a net profit of $190.2 million, or 74 cents per share, last year.

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The third-quarter 2007 results include $1.18 billion, or $3.33 per share, in charges for impairments, write-downs and write-offs related to declining property values and goodwill.

Although Pulte's loss is big, on a percentage of inventory, it brings the Bloomfield Hill, Mich.-based home builder in line with other large builders, JMP Securities analyst Jim Wilson said.

"The question is how much more is there to go," Wilson said. "We think there are signs that inventory is starting to find a peak, but there's defiantly impairments to go."

Sharp Drop in Revenue, Orders

Pulte said its quarterly revenue fell 31 percent to $2.5 billion the prior year. The company sold 7,468 homes, down 28 percent, and the average sale price fell 4 percent to $322,000.

Net new home orders fell 37 percent to 4,582 homes, with their value tumbling 47 percent to $1.3 billion.

"The operating environment continues to be challenged with elevated levels of new and resale home inventory, tightening of mortgage liquidity and weak consumer sentiment for housing," Richard Dugas Jr., Pulte chief executive, said in a statement.

The U.S. housing-building sector has been in decline for more than a year and a half.

Beginning when buyers balked at rising prices in some markets, the problems have been compounded this year by defaults on subprime mortgages.

A tightening of credit standards, even for borrowers with good credit scores, a glut of homes for sale and buyer concern about economic weakness has added to the gloom.

The National Association of Home Builders said recently its index of home builder confidence sank to a record low of 18 in October, the worst since the gauge began in 1985.

In September, U.S. housing starts and permits fell to their lowest in more than 14 years. The pace of sales of existing single-family homes fell to its lowest level since the National Association of Realtors began tracking the figures in 1999, and the median price was off 4.9 percent.

To weather the downturn, home builders have built fewer or smaller homes, cut prices, and reduced land holdings and payroll, while looking to generate cash to pay down debt.

Pulte ended the quarter with $102 million in cash and paid down $148 million of debt outstanding under its $1.86 billion revolving credit facility.

But earlier this month, Moody's Investors Service cut its ratings on Pulte and two other home builders to junk status, citing the expectation that bleak housing sector conditions will linger to at least 2009.

Looking to the fourth quarter, Pulte sees income from continuing operations in the range from break-even to $0.10 per diluted share, without any charges.

But most other home builders have declined to give any outlook and Pulte stopped at the current quarter citing "lack of longer-term earnings visibility and the difficult market conditions that persist."

Pulte's shares closed at $14.99 on the New York Stock Exchange. Year to date, Pulte shares are down 55 percent, while the benchmark Dow Jones U.S. Home Construction Index is off 51 percent.

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