New York, NY, April 28, 2006--Home-builder stocks pulled back Thursday as investors reacted to a string of earnings reports littered with order declines, missed expectations and lowered outlooks.
A trio of the largest companies in the sector released quarterly results before the markets opened Thursday, and the disappointing results sent the group into a tailspin.
Centex Corp. started the trouble shortly after Wednesday's closing bell when the company said its fiscal fourth-quarter earnings rose 6% from the year-earlier period but that it took a 14 cents a share tax write-off on land that has fallen in value. The company's backlog of homes awaiting construction dropped 6% and orders tumbled 11%.
Centex also significantly lowered its fiscal 2007 earnings outlook to a range of $8.50 to $10 a share. In January the company said it expected profit between $10.75 and $11.25 a share.
"The deterioration in home-building trends is materializing more rapidly than many had anticipated, including ourselves, and is likely to continue to put pressure on earnings expectations for the sector," wrote Raymond James analyst Rick Murray in a research note.
Wachovia Securities on Wednesday downgraded shares of Centex to market perform from outperform on worries over 2006 and 2007 earnings and declining margins. Shares of Centex fell $5.05, or 8.3%, to $55.70 Thursday.
Pulte Homes Inc., also released quarterly earnings after the closing bell Wednesday, saying profit rose 20% from the previous year. Yet new-home orders, which analysts closely monitor to predict revenue, fell 11% from the year-ago quarter to 10,725 homes. Orders fell in the company's Northeast, Southeast, Midwest and West markets, and rose slightly in the Central region.
Pulte, the second-largest builder in terms of 2005 worldwide deliveries, reiterated its 2006 profit outlook of $6 to $6.25 a share. Analysts polled by Thomson First Call see earnings of $5.98 a share for the year. Analysts at Friedman Billings Ramsey & Co., lowered their 2006 earnings estimate to $5.70 from $6.05, and trimmed their price target on Pulte shares by a dollar to $42, citing anticipated margin erosion and valuation. Other analysts have voiced concerns over the increasing use of incentives to move homes, which could also squeeze margins.
Shares of Pulte were off $1.15, or 3%, to close at $37.89 in Thursday trading.
More bad news hit the home-building sector Thursday morning after Beazer Homes USA Inc., posted its quarterly numbers.
The company said it swung to a profit in the fiscal second-quarter, but lowered its 2006 earnings forecast as the builder sees sales and prices slowing in several of its housing markets.
"In a number of markets across the country, we have seen the pace of sales decline and price appreciation moderate relative to that experienced over the past several years, as evidenced by the lower net orders this quarter," said Ian McCarthy, Beazer chief executive, in a statement.
Orders fell 19% on a unit basis and the company's chief executive said sales are slowing and price appreciation is moderating. Cancellation rates also moved up from the year-earlier quarter and Beazer lowered its 2006 profit forecast. On Thursday, Beazer shares fell $2.20, or 3.6%, to $59.05.
Aside from sagging home prices and sales, investors are also worried about rising mortgage rates after the yield on the benchmark 10-year Treasury note recently broke through 5%.
In its latest weekly survey, Freddie Mac said the average rate on the 30-year fixed-rate mortgage stood at 6.53%, up from 5.8% at the same time the prior year.
The steep pullback in the builder sector Thursday came one day after the stocks rallied on stronger-than-expected new-home sales data in March. Read the story.
Through Wednesday's close, the Dow Jones U.S. Home Construction Index is down about 8% year to date.
