Lennar Builds Bigger Losses

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There are some times when it's especially absurd for the analyst-dart throwers on Wall Street to even attempt to forecast a company's results. Perhaps never was that fact truer than with Lennar's (NYSE: LEN) latest quarterly results, which were nearly three times as bad as the throwers' consensus expectations.

For the quarter, the company reported a loss of $513.9 million, or $3.25 a shares, compared to earnings of $206.7 million, or $1.30 a share in the same quarter a year ago. The most recent quarter included charges of $3.33 per share related to valuation adjustments and write-offs. Revenues for the period slid 44% to $2.3 billion. The analysts apparently were looking for about a $0.58 per-share loss.

There was little quantifiable in the quarter on which to base any sort of belief that a light at the end of the tunnel would be anything but a rapidly approaching locomotive. And Lennar CEO Stuart Miller's comments accompanying his company's release didn't set a different tone. As he said, "Heavy discounting by builders, and now the existing home market as well has continued to drive pricing downward. Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates."

That cancellation rate was 32% for the quarter, comparable to the experiences of other builders that reported during the past reporting period. Lennar is the first of the builders to release results in the latest go-round, but I wouldn't expect a materially different tone from the likes of Centex (NYSE: CTX), Ryland (NYSE: RYL), D.R. Horton (NYSE: DHI), or Beazer (NYSE: BZH).

Indeed, it remains difficult to see how the efforts that Miller described by the mortgage market to "define itself" can have any effect on housing other than to retard its turnaround. With subprime lending reduced to a trickle and jumbo loans nearly as hard to get, the first-time buyer and the luxury end of the homebuilding market are both reeling. At the same time, there appears to be little reason to expect meaningful change until late 2008 at the earliest.

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