Home Builders Show Some Optimism Despite Grim Earnings Season
February 10 2009 - 12:54PM
Dow Jones News
A reporting season filled with narrowed quarterly losses, talk
of increased traffic and the possibility of a $15,000 tax credit
for buyers is giving battered builders something they haven't had
in a long time: hope.
"We're seeing some optimism out there," said Jerry Howard,
president and chief executive of the National Association of Home
Builders trade group. "The end is in sight.
"Obviously," he added, "there's some downside risk to these
predictions."
It remains a rough road for the industry, which has seen
business crumble during the worst downturn in decades. Builders
thought the worst had passed, only to see their turmoil exacerbated
and prolonged by the global credit crisis.
Companies are cutting costs, exiting markets and hoarding cash
to pay the bills. Layoffs remain rampant. Since its fiscal 2006
peak, Beazer Homes USA Inc. (BZH) has slashed its headcount by more
than 70%, with about 300 since Dec. 31.
Industrywide, orders and revenue remain depressed. Massive
incentives on new homes continue, as does price erosion driven by
mounting foreclosures. Barclays Capital expects national home
prices to fall another 20% from mid- to late 2008, with most of the
decline concentrated at the end of last year and 2009's first half.
A "slow bleed" is likely into early next year. That means
additional impairments are likely, which could fuel further
losses.
Even so, faint optimism is beginning to emerge.
Several builders have recently detailed smaller losses, showing
improvement from a string of bloody quarters. Earlier Tuesday, MDC
Holdings Inc. (MDC) reported a fourth-quarter net loss of $1.92 a
share, versus a per-share loss of $6.14 one year earlier. The
company finished 2008 with more cash than debt.
On Monday, Beazer said it lost $2.08 a share in its fiscal first
quarter, compared with a loss of $3.59 a share a year earlier.
Centex Corp. (CTX), the nation's third-largest builder by
closings and revenue, recently reported a fiscal third-quarter loss
of $5.34 a share, compared with a $7.94 per-share loss the previous
year.
Industry titan D.R. Horton Inc. (DHI) shaved its loss by about
half, 20 cents a share from 41 cents. "It is a wonderful quarter,"
said Donald J. Tomnitz, president and chief executive, in last
week's fiscal first-quarter earnings call. Builders also said some
buyers, long paralyzed on the sidelines, are venturing to sales
centers just in time for the crucial spring selling season. While
not all are inking contracts, even the return of browsers has
excited the industry.
"Sales momentum returned in December and has carried into
January," said Timothy Eller, Centex's chairman and chief
executive, in its earnings call Feb. 4. "We sold more homes in
December than October/November combined, and January was better
than December."
To be sure, business slows down for the year-end holidays and
deals have been hard to come by for builders. "An improvement off
of abysmal is not something to do the dance of joy about," said Joe
Snider, vice president and senior credit officer at Moody's
Investors Service. Even so, the trends are encouraging. Builders
are cautiously giddy about a $15,000 buyer tax credit that could be
included in the government's final stimulus package. The incentive,
for which the sector lobbied strongly, should help clear out
existing inventory and, eventually, drive new construction.
A survey by the builders' association, which has more than
200,000 public and private members, found that one-third of
respondents and 61% of renters would be more likely to buy a home
should the tax credit be enacted into law.
Some potential buyers have already begun shopping.
Said Howard: "The bottom line is that there is a flurry of
activity where it had been very dormant before."
-By Dawn Wotapka, Dow Jones Newswires; 201-938-5248;
dawn.wotapka@dowjones.com