Shares of home builder KB Home (NYSE: KBH) have been tumbling in early trading after the company announced this morning it swung to a first quarter loss. The company's quarterly numbers were dragged down by higher write-downs related to lower home prices. Unlike its competitor Lennar Corp. (NYSE: LEN), KB Home was not able to beat analysts' expectations, sending its shares down over 5% this morning.
Including a charge of $223.9 million in write-downs, the residential home builder posted a quarterly loss of $268.2 million, or $3.47 per share, hurt by lower new home deliveries and orders. The company's quarterly numbers were also hurt by higher impairment charges. Analysts expected KB Home to show a quarterly loss of "only" $1.17 per share.
The global crisis in the credit market put pressure on the home builder's revenue, which plunged 43% to $794.2 million. For this period, the slumping housing market and credit crisis came with a plunge of 75% for new home orders and with a drop of 57% for new home deliveries. Analysts, on average, predicted sales of $805.7 million in the quarter, according to Thomson Financial.
With the financial crisis spreading quickly, housing stocks have been facing tough times over the past few months. But on the heels of these worries, shares of one of the nation's largest homebuilders, Lennar Corp. (NYSE: LEN), have been climbing today despite posting a first quarter loss, as its earnings results were not as bad as analysts had forecast.
The company announced it swung to a quarterly loss of $88.2 million, or 56 cents per share, compared with a profit of $68.6 million, or 43 cents per share a year earlier, hurt by lower new home deliveries and orders. Included in the company's earnings figures was a charge of 38 cents per share related to valuation adjustments and write-offs. Excluding that, Lennar's loss would have come at 18 cents per share, exceeding analysts' forecasts for a quarterly loss of $1.07 per share.
The company's quarterly revenue saw a huge fall of 62% to $1.06 billion, down from $2.79 billion a year ago, on pressure from the average selling price which lost 8%. For this period, the slumping housing market came with a drop of 60% for new home deliveries, and with a decline of 57% for new home orders.
U.S. stock futures pointed to a higher open at the start of trading Thursday with Oracle likely to drop after reporting disappointing earnings yesterday. Sentiment could change, however as economic growth reading will be reported an hour before the opening bell.
On Wednesday, U.S. stocks dropped on renewed credit concerns after after news that the Clear Channel deal may be stalled due to financing issues. Declining durable goods orders didn't help sentiment and markets ended up declining with a day that exhibited patterns only too familiar as of late, a surge in commodity prices while the dollar weakened. The Dow industrials dropped 109 points, or 0.88%, the Nasdaq Composite lost 16 points, or 0.71%, and the S&P 500 fell 11 points, or 0.88%.
Today, several more economic readings will help shape the session, especially with the final reading on fourth-quarter gross domestic product -- due out at 8:30 a.m. EDT -- which is expected to remain the same as previous reading and show a 0.6% economic growth, a near standstill, and the weakest pace in five years. The deepening housing slump has probably tipped the U.S. economy into a recession. The situation may not be much better in 2008 as consumer spending has slowed and business investment and the housing market has continued to decline. Despite actions taken by the Federal Reserve and the government, these measures' effect will be a while in stimulating the economy and may not do so soon enough to avoid recession.
Also at 8:30, the Labor Department will release its weekly initial claims report.
As the financial crisis spreads quickly from Wall Street to other industries, two large home builder projects have received default notices. The problems involve developments in Las Vegas, where house prices have collapsed.
A project involving KB Homes (NYSE: KBH), Lennar (NYSE: LEN), and Toll Brothers (NYSE: TOL) has failed to make interest payments on $765 million in debt.
It is not clear how many other large real estate developments involving public home builders are facing near-term margin calls, but with the falling price of real estate, the problem in Las Vegas is unlikely to be that last one. That means that already weakened firms could face a credit crisis of their own as home prices continue to drop and the potential value of homes under construction face going on the market for a fraction of what they may have brought just a year ago.
Some of the large home building company stocks have lost over two-thirds of their value over the past year, and that may only be the beginning.
Douglas A. McIntyre is an editor at 247wallst.com.
One of the nation's largest homebuilders, Lennar, reported a $1.25 billion loss in the fourth quarter -- its largest ever -- as the housing slump drove prices lower and the builder took hefty charges. Lennar also reported a $1.9 billion loss for all of 2007. The Miami-based company said it was aggressively trying generate cash and lower inventory.
Quarterly losses rose to $7.92 per share, from $195.6 million, or $1.24 per share, a year ago. Revenue fell 49% percent to $2.18 billion from $4.27 billion in the same period of 2006, as both home deliveries and new orders fell 50%. The results topped the consensus forcast of analysts surveyed by Thomson Financial, who had expected a loss of $1.65 per share on revenue of $2.06 billion (these estimates typically exclude one-time charges such as land write-downs).
For the year ending November 30, Lennar's losses come to $12.31 per share, compared with profits of $593.9 million, or $3.69 per share, in 2006. Shares closed up 8.5%, to $16.21.
Will Wall Street today resume Wednesday's rally? Stock futures sure point to such a possibility at this time ahead of another busy morning, full of corporate earnings. While eBay earnings and a trade fraud of over $7.1 billion could weigh in on stocks, already Nokia reported strong earnings this morning, helping to offset such an effect in the background of the coming economic stimulus package.
On Wednesday, many were left wide-eyed and slacked-jawed when the Dow industrials did an over 600 points about face. From being down 326 points, the Dow industrials finished 298 points, or 2.5%, higher. The Nasdaq Composite rose 24 points, or 1.05%, and the S&P 500 rose 28 points, or 2.14%. Many claim the market was oversold, hence buyers came to find bargains. The reverse could also be attributed to the bond insurer bailout and hopes for further interest-rate cuts.
The effect on international markets was generally positive. Asian markets were generally higher Thursday with Japan, South Korea, Australia and the Phillippines all rising for a second day. In Hong Kong, though, the Hang Seng index seesawed to finish down 2.3%. In Europe, the picture was even better as European shares moved sharply higher on Thursday morning. The pan-European Dow Jones Stoxx 600 index climbed 3.3%, with financials lifting stocks.
While it all points to a positive start, two economic data points will be released today. Weekly jobless claim is due at 8:30 a.m. EST, and while usually doesn't carry much of an impact, it could this time if it points to a much weaker trend in the job market, giving more credence to recession fears. At 10:00 a.m., December existing home sales will be reported. As investors keep looking for that bottom in the battered housing market, again this data could affect the atmosphere on Wall Street.
Bank of America downgraded E-Trade Financial (NASDAQ: ETFC) to Sell from Hold, saying it no longer believes the value of its retail brokerage business can offset negative value at the bank. ETFC shares are down over 18% in premarket trading. [Update: as of 8:52 a.m., ETFC was down over 12%.]
Dell Inc. (NASDAQ: DELL) signed an advertising agreement woth $1.5 billion annually for three years with British firm WPP Group Plc (NASDAQ: WPPGY) rather than with rival Interpublic Group of Companies, Inc. (NYSE: IPG).
Lennar (NYSE: LEN) and Morgan Stanley Real Estate, a unit of Morgan Stanley (NYSE: MS)formed a land investment venture to buy, develop, manage and sell residential real estate. Lennar sold the venture properties with a net book value of $1.3 billion for $525 million. Lennar will have 20% ownership and 50% voting rights in the venture.
Big home-builder Lennar (NYSE: LEN) has dumped 11,000 properties to a company owned by Morgan Stanley (NYSE: MS). The price was a modest $525 million. Perhaps Lennar needs the cash. The Wall Street Journal writes that the deal "signals that investors have begun to pounce on bargain deals."
An arm of a big investment bank, especially one that has an independent balance sheet, can watch the properties fall further in value, as long as it believes that they will eventually rebound. If MS picked this property up for 60 cents on the dollar, it may get close to the entire original face value, if it waits out the real estate market for a few years.
The paper adds that "Lennar, which will have a 20% ownership stake in the venture, will have the option to buy back certain home sites." That sort of looks like "asset shifting," which is entirely legal, but a practice that may disguise the problems that were facing the home-builder.
If Lennar and its peers sell land before the end of the year, they can use the tax loss to shelter past profits.
Tax advantages aside, it is not a good sign that these companies have to dump assets that will probably regain most of their value. It raises the question of whether their best properties may be gone as the real estate market comes out of its slump, perhaps as early as 2009. At that point, home-builders may have crippled themselves for years to come by having disposed of the very assets that might help them recover more quickly.
Douglas A. McIntyre is an editor at 247wallst.com.
TheStreet.com has a great piece comparing Apple Inc.'s (NASDAQ: AAPL) iPhone with other alternatives in the market. While mostly the iPhone is found to be the most intuitive, the one minus is the email it seems. Also, Fortune has a piece on the power of Apple's founder and CEO, Steve Jobs. In premarket trading, Apple shares reached $175 -- have you read Georges Yared's post and bought before?
Dell Inc. (NASDAQ: DELL) chose retailer Carrefour Group to be the first European mass merchandiser to sell Dell notebook and desktop computers in its 365 stores in France, Belgium and Spain beginning in January.
Sirius Satellite Radio Inc. (NASDAQ: SIRI) said that Ford Motor Co. (NYSE: F) may have its satellite radio services in approximately 70% of Ford and Mercury 2009 vehicles next year.
Anybody who takes even a casual look at the October delinquencies knows that these companies are going to be severely capital-challenged. Meanwhile, value guys like Third Avenue Management (Radian) and fellow travelers (Old Republic and PMI) make Pyrrhic stands and engender short squeezes that are mistakenly not used to recapitalize. And outfits from E*Trade (NASDAQ: ETFC) (Cramer's Take) to Fannie Mae (NYSE: FNM) (Cramer's Take) are left holding the bag on this stuff.
TheStreet.com's Jim Cramer explains what could force the Fed to cut rates again.
The housing index just can't rally for a minute. The thing's amazing. The stress of the system is so clearly manifested by this that I have to wonder if the Fed wants this index lower.
Many of these firms lent money recklessly. Are the Fed heads thinking these companies need to pay like the New Centurys and the NovaStars (NYSE: NFI) (Cramer's Take) did? (Are the feds, by the way, thinking that this GMAC company has to go because that was a huge provider of crummy mortgages?)
TheStreet.com's Jim Cramer says names in this group are now trading vehicles, not long-term investments, but that doesn't mean they're any less critical to own.
Here we are again in the weeklong pullback in oil where the stocks all get thrown out and no one wants to touch them. We will soon hear from the chartists (as I call technical analysts) that these stocks were unable to take out their highs, or they are getting the right -- and cold --shoulder.
Things keep getting worse and builders get more and more cautious. In fact, according to the Commerce Department's most recent survey, housing starts dropped 10% to an annual pace of 1.19 million in September from a 1.33 million rate in August. That's worse than economists expected. Briefing.com's survey showed economists estimated a more modest fall to 1.29 million.
We haven't seen a housing market this weak since 1993 and the future doesn't look any better. Housing permits were down 7% to an annual rate of 1.23 million in September from 1.32 in August. That's the lowest level for permits in 12 years.
Shares of home builder 
With the financial crisis spreading quickly, housing stocks have been facing tough times over the past few months. But on the heels of these worries, shares of one of the nation's largest homebuilders, 
U.S. stock futures pointed to a higher open at the start of trading Thursday with Oracle likely to drop after reporting disappointing earnings yesterday. Sentiment could change, however as economic growth reading will be reported an hour before the opening bell.
Big home-builder 
TheStreet.com's Jim Cramer says most people -- including the Fed governors -- haven't spotted this market Achilles heel.
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