U.S. News

Lennar Swings to Loss, Sees Continued Weakness


Lennar, the second-largest U.S. home builder, posted a quarterly loss on Tuesday, forecast a loss for the current quarter and warned that the weak housing market could deteriorate further.

"If this is any indication of what to expect from the other home builders when they report results, this quarter is going to be pretty ugly," said Eric Landry, an equity analyst at Morningstar in Chicago. "The next quarter and beyond that it doesn't look too good either."

Lennar's loss came as U.S. government figures showed the housing sector's slowdown continuing. New-home sales in May fell 1.6 percent to an annual rate of 915,000 from 930,000 in April, below analyst expectations of 925,000.

The U.S. housing market has been suffering from a steep downturn for more than a year as high prices and climbing interest rates have deterred prospective buyers.

Speculators also have retreated from the market, unloading homes bought as short-term investments.

The outlook for the coming months also looks grim.

In a statement accompanying the company's results, Lennar Chief Executive Stuart Miller said "we continue to see weak, and perhaps deteriorating, market conditions" in the current quarter and the full year.

"Given uncertain market conditions, we continue to lack visibility as to future results, but we currently expect to be in a loss position in our third quarter," he added.

This echoed comments from the chief financial officer of No. 6 U.S. home builder Hovnanian Enterprises Inc. that the market will not significantly recover even in 2008.

"'08 is probably not going to be a year of strong recovery," J. Larry Sorsby said at the Reuters Real Estate Summit in New York on Monday. "Our hope is that it stays no worse than we are today."

Lennar reported a net loss of $244.2 million, or $1.55 a share, for its fiscal second quarter, ended May 30, compared with a profit of $324.7 million, or $2 a share, a year earlier.

The results included charges of $329 million, or $1.33 per share, for a loss of land sales, which included a write-down of land values and write-offs of deposits on land options.

Before charges, the company lost 23 cents per share, while analysts expected a profit of 1 cent per share, according to Reuters Estimates.

Wall Street has forecast earnings of 20 cents per share before items in the current quarter.

"Long-term Lennar will do well because it has one of the strongest balance sheets in the industry," Morningstar's Landry said.

"They have to get across the valley of this downturn and no one knows just how deep or how wide it's going to be."

Lennar's home-sale revenue fell 33 percent to $2.7 billion, as the number of homes declined 29 percent. Signed prospective buyers canceled their orders at a rate of 29 percent.

New orders during the quarter fell 31 percent to 8,056 homes, excluding unconsolidated businesses.

Year-to-date, Lennar shares are down 26 percent, while the sector is off 24 percent, according to the Dow Jones U.S. Home Construction Index.

According to BuilderOnline, Lennar overtook Pulte Homes as the No. 2 U.S. home builder, as measured by the number of homes sold last year, behind D.R. Horton.

Lennar shares were down 70 cents, or 1.81 percent, at $38.05 in trade on the New York Stock Exchange.