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Lennar Troubles Worsening
Wednesday, 26 September 2007

Lennar Reports Biggest Loss in Its 53-Year History
Lennar Corp., the largest U.S. homebuilder, reported the biggest quarterly loss in its 53-year history after $848 million of costs to write down the value of real estate. The third-quarter net loss was $513.9 million, or $3.25 a share, exceeding the most pessimistic estimates from analysts and suggesting the worst housing market in 16 years shows no signs of stabilizing. Revenue at Miami-based Lennar fell 44 percent to $2.34 billion, the lowest in more than three years.

Lennar Reports Biggest Loss in Its 53-Year History (Update9)

By Brian Louis

Sept. 25 (Bloomberg) -- Lennar Corp., the largest U.S. homebuilder, reported the biggest quarterly loss in its 53-year history after $848 million of costs to write down the value of real estate.

The third-quarter net loss was $513.9 million, or $3.25 a share, exceeding the most pessimistic estimates from analysts and suggesting the worst housing market in 16 years shows no signs of stabilizing. Revenue at Miami-based Lennar fell 44 percent to $2.34 billion, the lowest in more than three years.

Chief Executive Officer Stuart Miller said in a statement the company, which sells more than a third of its homes to first-time buyers, has cut 35 percent of its workforce and will continue to eliminate jobs to ``bring us back to profitability.'' Lennar reduced its staff by more than 1,000 employees last year. The shares fell 4 percent today and are down 56 percent this year.

``There's too much supply right now relative to the demand so pricing is suffering,'' said Peter Schofield, who helps manage about $1 billion at Exton, Pennsylvania-based Knott Capital. ``The builders are doing everything they can to try to create incentives for buyers, but the lending standards, having gotten so much tougher, present a quandary.''

Lennar's results came as an S&P/Case-Shiller survey showed home prices in 20 U.S. metropolitan areas fell the most on record in July and the Conference Board said consumer confidence in September dropped to the lowest level in almost two years.

Values Fall

Property values slid 3.9 percent in the 12 months through July, S&P/Case Shiller said. The Conference Board's index of confidence plunged to 99.8, from a revised 105.6 in August and workers were less optimistic about job prospects.

Miller said in a conference call the third quarter results ``on their face are disappointing.''

``Nevertheless, they are part of a program to reflect the harsh realities of a very difficult market condition,'' Miller said.

There is little evidence that home sales are recovering. Rising defaults in subprime mortgages, made to borrowers with bad or incomplete credit, has cut demand for mortgage-backed securities, stopping the flow of money to lenders and making it more difficult for buyers to get loans. Sales of new homes dropped 10.2 percent in July from a year earlier, according to the Commerce Department.

`Further Deterioration'

``There are customers out there, but they're simply not motivated,'' Miller said.

Miller said the supply of new and existing homes needs to fall, the mortgage markets must stabilize and consumer confidence must improve before the market can recover. The company hasn't seen that happen yet, he said.

``We have seen further deterioration throughout our third quarter,'' Miller, 50, said. August was ``clearly'' worse than the prior two months, he said.

Prices are being driven down by ``heavy discounting by builders, and now the existing home market as well,'' Miller said in the statement. ``Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates.'' Miller owns 1.2 million Lennar shares, according to Bloomberg data.

Lennar's division leaders recently reported pricing in the existing home market had started to drop, Miller said.

Falling Prices

``The existing home market is moving much more rapidly to adjust downward,'' Miller said.

Of the mortgages that Lennar originated, 1 percent were subprime loans, Chief Financial Officer Bruce Gross said in a conference call. Gross said that Alt-A loans fell to 25 percent from 41 percent last year and the percent of fixed rate loans was 88 percent compared with 63 percent a year ago.

``The days of no verification, no downpayment and low credit scores are past,'' Gross said.

Lennar fell 96 cents to $23.22 in New York Stock Exchange composite trading. Earlier, the shares touched $22.50.

The per-share loss at Lennar included a charge of $3.33 to write off land option deposits and to reduce the value of the company's assets.

Lennar was projected to report a fiscal third-quarter loss of about 58 cents a share, excluding some items, according to the average estimate of 11 analysts surveyed by Bloomberg. The lowest estimate from analysts was for a loss of $1.21 a share.

Orders Drop

The slump in revenue resulted from a 41 percent decline in the number of homes delivered in the quarter to 7,636. The average sales price fell 6.3 percent from a year earlier to $296,000 as Lennar offered $46,000 per home in extras. That's 28 percent higher than the $35,900 offered a year earlier.

New orders in the fiscal third quarter ended Aug. 31 plunged 48 percent to 5,804. The biggest decline was 53 percent in the company's central region of Arizona, Colorado and Texas.

The value of the company's backlog, or homes under contract and not yet sold, slumped 60 percent to $2.2 billion from a year earlier. Lennar's cancellation rate was 32 percent, up from 29 percent in the second quarter.

Lennar's charges included $242.5 million in write offs of options on land it doesn't plan to buy, $114.6 million in writedowns on property, and a $138.7 million charge on investments in entities it doesn't include in its operations.

The company's gross margin on home sales excluding land valuation writedowns was 14 percent, compared with 19.5 percent last year.

In the year-earlier third quarter, Lennar reported a profit of $206.7 million, or $1.30, the company said today.

Lennar sold most of its homes in Houston and Austin, Texas; Riverside-San Bernardino, California; and Tampa, Florida, according to UBS Investment Research.

Florida Sales

Existing single family home sales fell 24 percent in July in Florida and the median price fell 5 percent to $237,500, according to the Florida Association of Realtors. Sales fell 22.7 percent in July in California and the median price rose 3.2 percent to $586,030, according to the California Association of Realtors.

Single family, condominium and co-op home sales fell 1.3 percent in the second quarter in Texas, according to the National Association of Realtors.

Home prices will probably fall on a year-over-year basis for the first time since the Great Depression, according to Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis.

The average 30-year fixed mortgage rose 0.10 of a percentage point to 6.08 percent on Sept. 24, according to North Palm Beach, Florida-based Bankrate.com's survey of banks and lenders in the 50 U.S. states.

The increase in long-term mortgage rates comes after the Sept. 18 decision by the Federal Open Market Committee to cut its benchmark interest rate to 4.75 percent from 5.25 percent.

To contact the reporter on this story: Brian Louis in Chicago at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

 http://www.bloomberg.com/apps/news?pid=20601087&sid=aAeJz9NgdaTA&refer=home

 
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