Shares of Centex Corp. (CTX) fell Friday after the home builder previewed its third-quarter pain, saying orders fell 80% from a year earlier and write-downs between $550 million and $600 million are projected.

The abysmal results show just how bad the environment has become for the troubled housing sector, and preview what's to come as earnings season approaches. Ryland Group Inc. (RYL) and Meritage Homes Corp. (MTH) earnings are expected Wednesday.

"We firmly believe (Centex) will only be the first of most builders to report dismal orders for the quarter," says Pali Capital analyst Stephen East.

But Centex's news wasn't all grim. Sales volumes improved in December and into January and the cash position remains strong.

Even so, the builder's shares started Friday down 7% before recovering to trade down 38 cents, or 3.8%, at $9.44, making it the sector's biggest decliner against a slight decline for the Dow Jones U.S. Home Construction Index.

Centex Chairman and Chief Executive Timothy R. Eller cited "abrupt and sweeping changes in the economy that caused unprecedented homebuyer hesitancy" for sales tumbling at the start of its fiscal third quarter, which ended Dec. 31.

Builders were already having a tough time before the financial crisis swept the globe in the fall. Potential buyers' fear has only grown as foreclosures and job losses mount, stock portfolios tumble and home prices continue to fall. Builders have responded by halting most construction. The U.S. Commerce Department said Thursday that housing starts plunged 15.5% in December, pushing 2008's figure to the lowest level since the department began keeping track.

Centex, the nation's third-largest builder, said orders totaled 1,080 compared with 5,537 a year ago and 2,728 in the second quarter. Closings came in at 3,405, down 49% from a year ago and 10% in the second quarter.

"Sales offices are silent," said Credit Suisse analyst Dan Oppenheim. "Sales were significantly worse than our expectation for a 54% decline."

UBS, which had forecast a 45% drop, said the orders reflect the market's deterioration, tough comparisons and the impact of management's "slower response to changes in demand," noted David Goldberg the bank's builder analyst.

Investment bank Fox-Pitt Kelton estimates the cancellation rate was roughly 50%.

There was a silver lining for the Texas-based builder. Centex noted better sales volumes in December and January, due to price reductions and incentives including a rate buydown that locks in at 4.5% after two years.

Desperate builders hope such financing specials - which follow free upgrades, price cuts and price-protection guarantees that didn't help much - will be the catalyst that lures buyers to the closing table. Toll Brothers (TOL) this week offered a 3.99% fixed interest rate for 30 years.

But such programs carry a cost. On Friday, Centex projected between $550 million to $600 million in write-downs. Builders continue to feel pain as land and housing values continue to plummet: The sector has already impaired more than $25 billion since 2006.

While the quarterly amounts are slowly coming down, impairments show no sign of ending. Credit Suisse expects $785 million more from Centex alone.

Another positive came from cash. Centex expects to report a cash balance of $1.5 billion for the fiscal third quarter, up $200 million from the second quarter. Centex also anticipates generating positive cash flow from operations in this quarter as well as for fiscal 2010, Eller said. That's considered key as builders hoard cash to pay the bills and survive what has become a prolonged downturn.

"It truly is a high-stakes poker game," said Vicki Bryan, an analyst at Gimme Credit, an independent research service on corporate bonds. "Cash is king."

Last year, builders generated billions in tax refunds, asset sales, and in savings by curtailing land purchases, she noted. Layoffs, division merging and other cost cutting remained rampant. But such sources will not be available "on the same scale this year, and there is little room to cut costs as revenue declines further."

Centex's earnings are scheduled for release on Feb. 3.

-By Dawn Wotapka, Dow Jones Newswires; 201-938-5248; dawn.wotapka@dowjones.com

(Shirleen Dorman contributed to this report.)

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