Housing Market Woes Take Toll On Centex And KB Home

Home builders Centex and KB Home said Tuesday they would take charges to reduce their land positions in a sign the weakest U.S. housing market in decades may not yet have bottomed.

Meanwhile, billionaire investor Carl Icahn said he had increased his stake in another home builder, WCI Communities and would pressure management to improve performance. WCI shares jumped on the news.

Centex--which will post results on Jan. 23--said it would report a loss from continuing operations for the third quarter, which ended in December, on sharp drops in home closings and sales.

"We are navigating through one of the most challenging housing environments in the past 25 years," Chief Executive Tim Eller said in a statement.

Continuing Challenges

Deutsche Bank analyst Nishu Sood said in a note to clients: "Centex's preliminary third-quarter results reflect continuing housing market challenges, belying the notion that the housing
market has already turned a corner.

"The company's announcement is a familiar mix of earnings below expectations, orders that continue to fall and ongoing asset impairments," Sood added.

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.

“If this is as far as it goes, that's fine," Tom Smith, a Standard & Poor's home builder analyst, told CNBC. "If it turns out that there are additional writedowns in the March quarter or June quarter, that would be more surprising and prove out to be a larger, deeper downturn than the market had been looking forward to."

Shares of home builders, as measured by the Dow Jones Home construction index are down about 30% over the past 52 weeks.

Centex said it expected to report a third-quarter loss of $2 per share from continuing operations after certain items. Excluding those items, the company said it would report a profit of 75 cents per share.

In October, Centex forecast a third-quarter profit of 90 cents a share from continuing operations.

Reducing Inventory

"We are responding by reducing our land position and inventory, aligning our workforce to the current sales pace and improving our overall cost structure," CEO Eller said.

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

The company said the charges were in line with its previous forecast.

Centex said it recorded 8,360 home closings in the quarter, down 12% from a year earlier. Net sales fell 24% to 6,139.

The company said it had canceled or intended not to exercise land option contracts involving about 37,000 controlled lots because of the decline of housing activity.

Centex also plans to record land valuation adjustments of about $300 million, about one-third of that in joint ventures. It also said it was increasing by $60 million its provision for taxes in connection with its previously disclosed federal audit.

WCI Communities shares have lost 16% percent of their value over the past year, but have jumped more than 47% since Icahn first disclosed his stake. On Tuesday, Icahn said he has
increased his stake in WCI to 6.1 million shares, or a 14.6% stake, from 1.7 million shares.

Icahn said in a regulatory filing that he planned to contact WCI about ways to "unlock the inherent value of the shares."