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Three More on the Housing Slide

One of these days, a homebuilder will knock us over with a straw by reporting actual quarterly earnings. But that day clearly wasn't part of this week, a time when Meritage (NYSE: MTH  ) , Centex (NYSE: CTX  ) , and Pulte (NYSE: PHM  ) teamed up to report a combined loss approaching $2 billion. And their losses followed big hits that Lennar (NYSE: LEN  ) and Ryland (NYSE: RYL  ) reported last week.

However, the Wall Street dart-throwers expect Toll Brothers (NYSE: TOL  ) perhaps to check in with a couple of pennies of earnings when that company comes front and center next week. But as wildly off as prognostications were for this week's reporting triumvirate, I'd suggest that Fools not turn blue holding their breath in anticipation.

Meritage is first up
Arizona-based Meritage Homes was the first to tell us about its quarter. That quarter boiled down to a loss of $128.8 million, or $4.91 per share, compared with a profit of $9 million, or $0.34 a share, a year earlier. The dart-throwers' consensus was for a loss of about $3.52 per share.

A string of charges totaling just around $200 million pre-tax for everything from joint-venture valuation adjustments to a golf-course valuation impairment didn't help. And as with other builders, activity levels continued to decline, with closings falling 18%, closing revenues declining by 25%, and unit sales orders dropping by 13%.

On the positive side (and as is the focus and mantra of all builders amid the current quagmire), CEO Steve Hilton did emphasize the "progress we made strengthening our balance sheet and improving our liquidity."

And then Centex ...
Not to be outdone, Dallas-based Centex dropped $975.2 million, or $7.94 a share, in the quarter. Those numbers compare to $228.1 million, or $1.90 a share, on the red ink side for the same quarter a year ago. The dart-throwers weren't even in the game, with an estimated loss of $0.73. I'm suggesting that, for the time being, we stack their miss under the "Why Bother" sign.

The company's loss was vastly expanded by the combination of a $554 million, or $2.79 a share, charge for home value write-downs and land forfeitures. And as if that weren't enough, Centex also recorded another $500 million charge to establish a tax valuation allowance.

And though sales orders slipped 10% in the quarter, the period wasn't devoid of positives. The good things (relatively speaking, of course) included a drop in the cancellation rate to 33% and a cut in the inventory by about the same percentage.

And finally, Pulte
Pulte didn't quite measure up to Centex in the quarter, posting a loss of "only" $874.7 million, or $3.46 a share. The results a year ago included a loss of $8.4 million, or three pennies per share. The throwers had been expecting a per-share loss closer to $0.50, so that one can be stacked right up there with the Centex estimate.

The company's land, inventory, and goodwill charge for the quarter came to $543.3 million. Beyond that, you can add that figure to a $622 million -- $2.46 a share -- deferred tax valuation allowance.

Activity levels included a 29% drop in net new orders and a 31% slide in closings. Indeed, as CEO Richard Dugas observed, conditions actually worsened in the quarter as compared to the prior three periods. And as he also said, "Pulte will continue to focus on generating cash and strengthening the balance sheet." In the meantime, the company is attempting to deal with weak buyer demand and the problem of mortgage availability.

Given all of this information, I'm inclined to offer a couple of conclusions relative to the still-deteriorating conditions:

  • The homebuilding analysts don't know whether they're coming or going. That's not as much their fault as it is tied to the currently unprecedented conditions in the industry. They're betwixt and between as to whether to even include charges in their estimates, and so their forecasts become absurd. It's time for them to take a break from the estimating game.
  • The housing debacle is far from over. Indeed, it may yet be far from its nadir. As such, with thousands of non-homebuilding stocks to choose from, Fools can find far better places to employ their investment funds than to sprinkle them among the homebuilders.

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8/18/2009 4:00 PM
CTX $11.95 Down +0.00 +0.00%
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