Lennar Swings to Loss, Hurt by Falling Land Values


Builder Lennar, the No. 2 U.S. home builder, Tuesday reported its worst-ever quarterly results as the crumbling U.S. housing market led to a much wider-than-expected loss, sending its shares down to a five-year low.


Lennar, whose sales for the period dropped 44 percent, also said it had slashed jobs by about 35 percent and that further cuts would be necessary.

The loss for the third quarter ended on Aug. 31 was $513.9 million, or $3.25 a share, compared with a year-earlier profit of $206.7 million, or $1.30 per share.

Wall Street analysts on average had expected a loss of 55 cents per share, according to Reuters Estimates.

"Heavy discounting by builders, and now the existing home market as well, has continued to drive pricing downward," Lennar Chief Executive Stuart Miller said in a statement. "Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates," he added.

The U.S. housing market has been suffering from a steep downturn for nearly two years as high prices and climbing interest rates have deterred prospective buyers. Problems in the credit market, stemming from defaults of mortgages to those with the riskiest credit histories, have exacerbated the situation as even those with good credit ratings have found mortgages more difficult to obtain.

"They're dealing with a lot of excess capacity still," Thomas Leritz, portfolio manager with Argent Capital Management, which does not own home-building shares but follows the stocks. "In addition to that, you have foreclosures, so there's excess supply coming back into the market from foreclosures as well," he said. "What we're looking for is some sense that there's no additional inventories going into the market."

On Tuesday, the National Association of Realtors said that the inventory of U.S. existing single-family homes for sale rose in August to their highest level in 18 years.

Also Tuesday, Standard & Poor's/Case Shiller national home price index showed the price of an existing single-family home fell 0.4 percent in July from June and declined 3.9 percent from a year earlier, the steepest drop since July 1991.

Sinking Land Values, Sinking Stock Price

Walking Away from Land Options

Lennar said its loss included a charge of $3.33 per share for writedowns of land values and write-offs for land options it walked away from. Lower land values in the western part of the United States drove a significant amount of the charges, which totaled about $848 million.

The company's shares , which have lost more than half their value so far this year, were down more than 4 percent on the New York Stock Exchange.

Lennar helped drag down the sector as measured by the benchmark Dow Jones U.S. Home Construction Index, which was off 2.8 percent.

The company's home-sale revenue fell 44 percent to $2.2 billion, as the number of sold homes, excluding unconsolidated joint ventures, dropped 41 percent and the average sale price slipped 6 percent to $296,000.

During the quarter, Lennar offered buyers $46,000 per home in incentives to move homes it had built but not sold. That was up from $35,900 in the year-earlier period.

The incentives and the lower home-prices resulted in home-sale gross margins deteriorating to 14 percent from 19.5 percent in third quarter 2006.

New orders fell 48 percent to 5,804 homes. Those who signed contracts canceled their orders at a rate of 32 percent.

Loss on land sales totaled $344.7 million in the third quarter because of valuation adjustments and costs related to 15,000 home sites that the company does not intend to purchase.

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

Inventory Questions Remain

Lennar is not sure at the moment how long it will take the current glut of inventory in the U.S. housing market to be absorbed, Miller said Tuesday.

"Current market conditions are primarily defined by the overhang of inventory," he said on a conference call with analysts. "There continues to be a great deal of downward pricing pressure."

Miller also said the company has pulled back production starts 62 percent year-over-year.