Lennar posts worse-than-expected loss; orders fall
NEW YORK (Reuters) - Lennar Corp (LEN.N), the second-largest U.S. home builder, reported a bigger-than- expected quarterly net loss on Thursday as deliveries and new orders tumbled, sending its shares down as much as 11 percent.
The net loss narrowed to $120.9 million, or 76 cents per share, in the second quarter ended on May 31 from $244.2 million, or $1.55 per share, a year earlier, as the company cut costs.
Analysts had forecast a net loss of 59 cents per share, according to Reuters Estimates.
The U.S. housing market is in its worst slump in decades. Demand has weakened, prices are falling and inventories have swelled in the face of a slowing economy.
Conditions in the industry will worsen before they improve, Lennar said during its conference call, adding that field visits revealed demand had not yet stabilized.
Foreclosed homes are becoming even more of a threat to builders of new houses such as Lennar. More foreclosed homes, rather than fewer, are being put up for sale in many markets, making foreclosed homes Lennar's "toughest competitor," the company said.
The glut of inventory is depressing prices. Lennar said the average sales price of homes delivered had fallen 8 percent so far in 2008.
"The fundamental drivers that have plagued the market are still a big problem," said Majestic Research analyst John Tomlinson.
Revenue fell 61 percent to $1.05 billion, in line with analysts' estimates.
Home sales fell 60 percent to 3,830 and the value of Lennar's backlog sank 56 percent to $1.3 billion.
To navigate the downturn, U.S. builders are focusing on cash generation and debt reduction, selling off excess land and inventory accumulated during the boom years of 2002 and 2006.
Last month, top U.S. home builder D.R. Horton Inc (DHI.N) halved its dividend and posted a quarterly loss of $1.3 billion as it wrote down the value of its land and unsold homes after cutting prices and sweetening incentives to boost sales.
Lennar ended the second quarter with about $880 million in cash and no outstanding borrowings under its credit facility.
The company reduced expenses by $238.9 million, which strengthened its margins.
"Having a stronger margin when deliveries are down 60 percent is nice, but it doesn't really matter," Tomlinson said.
The future looks bleak as well. Lennar's new orders fell 45 percent to 4,396 homes during the quarter, he noted.
Lennar Chief Executive Stuart Miller said the industry needed government help, citing rising foreclosures and unemployment along with sagging consumer confidence.
"We are hopeful that the federal government will acknowledge the need for further reform and will institute programs designed to stabilize and facilitate the recovery of the housing market," he added.
The U.S. Senate was expected this week to approve the biggest government program yet to tackle a deep housing market slump, but a lone Republican lawmaker has vowed to block the bill until he gets his way on renewable energy tax credit legislation.
The housing bill would create a multibillion-dollar fund to help hundreds of thousands of troubled homeowners refinance their costly mortgages into more affordable loans backed by the government, if lenders agreed to take a loss on the loans.
"We recognize that the remainder of 2008 will likely see further deterioration in overall market conditions," Miller said.
But he added the company was positioned to "navigate the current market downturn as a leaner and more efficient home builder."
As market conditions continue to worsen over the next year, well-capitalized builders will be able to start buying land again, the company said during its conference call.
Lennar's shares, which hit a low of $12.94 earlier in the day, were down 8.6 percent at $13.32 during midday trading on the New York Stock Exchange.
(Additional reporting by Christopher Kaufman; Editing by Lisa Von Ahn and Andre Grenon)