In a minute, I'll tell you about the quarterly numbers for Pulte
Thursday's avalanche of housing information was led by yet another meaningless report on this forlorn industry. This one came out of the Census Bureau, and you had to be a very special person to get anything out of it -- or, frankly, to care about it.
According to the report, September new home sales lumbered along at an annual rate of 770,000 units. That was up from a revised pace of 735,000 for August, but the revision thing should let you know that this report is flawed. And I'm here to bet one of my four children -- heck, I'll bet 'em all -- that the next revision will ultimately involve a significant reduction in the activity level.
Of even greater importance, the Census numbers don't take into account cancellations by buyers who can't sell their current homes to facilitate their moves, or can't get a mortgage, or simply are overcome by buyers' remorse. With some builders now suffering cancellation rates near 50% of all contracts signed, it seems to me that this very omission renders the new home sales report even less believable than the National Inquirer.
Beyond that, the report purports to provide an indication of the average new home selling price. But to the substantial detriment of that indicated figure -- $238,000 is the latest metric -- it doesn't take into account builders' incentives. With homebuilders chopping prices faster than a butcher with a deadline, the real average figure is almost certainly well below $238,000. So why chortle about an obviously inaccurate average price in the first price?
With that as a backdrop, let's look at the September performances of three homebuilders who've just reported. Purely for kicks, I'll take them in descending order of their write-off size for the quarter.
Pulte earnings
Bloomfield Hills-based Pulte recorded a loss of $787.9 million in the quarter. That translates to $3.12 a share and compares to a profit of $190.2 million, and $0.74. The latter two figures were recorded last year, although they might as well have been from another millennium. Revenue for the company fell to $2.47 billion, from $3.56 billion in that other millennium.
The numbers for the company would have been better -- and I obviously have my tongue pressing firmly against my cheek -- were it not for a whopping $1.18 billion, or $3.33 per share, in pre-tax charges to get the land and goodwill lines on the left side of the balance sheet more reflective of reality. That tops Centex's
But perhaps the most telling aspect of Pulte's disclosure was its contention that cutting prices doesn't always lead to increased sales. That obviously indicates that demand really is pretty inelastic and, consequently, that housing's difficulties may be even more deeply rooted than generally is recognized.
MDC earnings
MDC Holdings, a Motley Fool Hidden Gems pick, will have to work much harder if it wants to hit the big time in housing write downs. The company's asset impairment charges reached $249 million for the quarter, along with $5.1 million in deposit and pre-acquisition cost write-offs.
The result was a loss of $155.4 million, or $3.40 a share, compared to earnings of $48.7 million, or $1.06 a share. Revenue fell 36% to $686.6 million.
Ryland earnings
California-based Ryland recorded write-offs of $128.1 million. As a result, the company lost $54.7 million, or $1.30 a share, vs. income of $87.9 million, and $1.97 a share. Total revenues dipped to $732.3 million, from $1.13 billion.
Interestingly, Ryland's new orders declined in each of its four regions with the exception of the West. All of the regions saw reductions in closing, which really is the more important metric for any builder.
Foolish conclusion
So the beat goes on for the homebuilders. That beat is, however, thrown off somewhat by the ludicrous reports or surveys about one aspect of housing economics or another that hit the media every couple of days. But unless, and until, the industry's rhythm becomes upgraded, I'd suggest yet again that Fools treat these homebuilders' shares as highly contagious.
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