Thursday, November 04, 2004

Lennar Warns on 4th-Quarter Home Closings

Thursday November 4, 1:17 pm ET
By Ben Klayman

CHICAGO (Reuters) - Lennar Corp. (NYSE:LEN - News) warned on Thursday it may have to delay closings on 600 of the new houses it expected to deliver to homeowners in the current quarter in part because of slowing demand in Southern California and Las Vegas.

The Miami-based company's shares fell almost 4 percent initially, dragging down the entire sector as the Dow Jones U.S. Home Construction index (^DJUSHB - News) slipped as much as 2 percent.

The problems cited by Lennar raised red flags for analysts regarding the entire homebuilding sector.

"Slowdowns in Southern California and Las Vegas will hit homebuilders extremely hard as many rely on these markets for a large portion of their total earnings given the much higher than average margins being generated in these markets," Raymond James analyst Paul Puryear said in a research note.

Puryear, who has a "market perform" rating on Lennar, lowered his estimates for the company's current fourth quarter and fiscal 2005 earnings.

Lennar blamed the delays in the closings, where the consumer receives the keys to the completed home, on hurricanes in Florida affecting new orders and production, production delays in Las Vegas, and softer demand in Southern California and Las Vegas.

The number of delayed closings, also known as deliveries in the industry, would have made up 6.5 percent of Lennar's third-quarter total. Its homes sold for an average price of $269,000 in that quarter.

The homebuilding industry "has remained strong," but the company could not yet quantify the impact of these delays on its fourth-quarter financial results as it is still paring down assets in land and joint-venture activities.

Analysts expect Lennar to post a profit of $2.24 a share before one-time items for the fiscal fourth quarter, which began Sept. 1, according to Reuters Estimates. They expect the company to earn $6.38 a share in fiscal 2005, which begins in December.

Lennar's wording suggests land sale profit will become a larger portion of earnings going forward as homebuilding operations slow, Puryear said.

In September, Lennar said new home orders in the third quarter rose only 1 percent as it deliberately slowed orders to catch up on the backlog of existing orders awaiting construction. It added that its ability to raise prices in some markets, such as the lucrative Southern California housing market, had weakened.

Lennar, which raised its 2004 and 2005 profit outlooks that month, also said then that it expected to feel the brunt of the hurricane-caused delays, and higher transportation and material costs in the fourth quarter and next fiscal year.

It previously raised its earnings forecast for fiscal 2004 by 20 cents to $5.70 a share, and for fiscal 2005 by 60 cents to $6.60 a share.

Thursday's warning came ahead of the company's appearance at a UBS building and building products conference.

Lennar shares fell as low as $43.30, and were still off 95 cents, or 2.1 percent, at $44.06 on the New York Stock Exchange (News - Websites) on Thursday afternoon.

Other homebuilding stocks off 3 percent or less in trading included Standard Pacific Corp. (NYSE:SPF - News), Pulte Homes Inc. (NYSE:PHM - News), M/I Homes Inc. (NYSE:MHO - News), Meritage Homes Corp. (NYSE:MTH - News), M.D.C. Holdings Inc. (NYSE:MDC - News), Centex Corp. (NYSE:CTX - News), KB Home (NYSE:KBH - News), Beazer Homes USA Inc. (NYSE:BZH - News) and Ryland Group Inc. (NYSE:RYL - News).


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