Expect another tough day for home builders

Posted Mar 27th 2007 9:11AM by Michael Fowlkes
Filed under: Before the Bell, Major Movement, Earnings Reports, Forecasts, Bad News, From the Boards, Industry, Competitive Strategy, Centex Corp (CTX), KB HOME (KBH), Lennar Corp'A' (LEN), Economic Data

Yesterday was definitely a tough day for home builders following disappointing news on new homes sales in February. The tone for home builders is going to be rough again today following this morning's earnings release from Lennar Corp. (NYSE: LEN).

It really comes as no surprise that the nation's third largest home builder put up weaker than expected earnings this morning. The subprime mortgage crisis that the market has been struggling with the last month definitely took its toll on the company and according to LEN, the trouble is not nearing an end just yet.

Lennar hit the housing market with a one-two punch today by not only missing analysts' estimates but also forecasting lower 2007 earnings. Analysts had expected to see the company report $0.55 per share for its fiscal first quarter. The home builder came in well shy of that estimate at $0.43 per share with a quarterly profit that fell over 70%. Revenue saw a 14% drop to $2.8 billion and the company saw a decline 27% draw in new homes orders.

On top of reporting weak numbers for the first quarter, the home builder also added fuel to the flames by announcing that it did not expect to meet its 2007 guidance. The company did not issue new guidance for the year and stated that "Until we see prices stabilize... we will not be able to project the timing or the scope of margin recovery."

Shares of LEN are trading down sharply so far in premarket action. Early morning traders have pushed shares down 3.2% with about an hour to go before the open. In other premarket action Ryland Group (NYSE: RYL) is trading down 0.2%, Centex Corp (NYSE: CTX) is down 0.1%, and KB Home (NYSE: KBH) is now being traded down 1.3%.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

Tags: ctx, housing, kbh, len, ryl, Ryland Group, RylandGroup, subprime