Centex Gives Inventory the Chop
By David Lee Smith
May 1, 2007
Major homebuilder Centex (NYSE: CTX) followed last week's lead by its peers Pulte (NYSE: PHM) and Beazer (NYSE: BZH) when it described the current housing market as too uncertain to provide forward guidance. And yet, if you dig beneath the surface, there is some good stuff to be obtained on the nation's housing crisis.
Centex generated income of $1.60 per share in the fourth quarter, compared to $3.04 last March in what seems like a totally different era for housing. But the most recent results include sales of assets -- mostly the disposition of the company's commercial construction and subprime mortgage operations. On a continuing operations basis, Centex lost $22.3 million, or $0.18 a share, in the quarter, a much greater loss than had been anticipated.
But as has been the case in recent quarters, Centex's management has remained far more active in chopping its inventory of land and options than have many other builders. In the March quarter, for instance, while closings decreased 14% year over year, homebuilding results were also hit by option write-offs totaling $96 million and by $106 million in "land valuation adjustments."
Nevertheless, Chairman and CEO Tim Eller and his minions continue to seek to reduce both land positions and the inventory of spec homes. Eller noted during the call that March was a particularly difficult month, with "media noise" regarding subprime woes apparently causing some buyers to "take a pause." It was also in that month that management "began to see people unable to obtain financing."
Which tells old smarty me that lending standards are finally and perceptibly being tightened. And while this phenomenon obviously is appropriate, it is also likely to delay housing's recovery. To wit, a growing number of companies -- now including Centex -- are refusing to provide a look ahead at probable results for this year.
Nevertheless, I continue to believe that patient Fools will be able to realize values from some of the builders over time. My favorites, given an extended time horizon, continue to be Centex for its management strengths and Toll Brothers (NYSE: TOL) for its luxury niche position.
-------------------------------------------
Edit > I am not sharing the fools opinion. At these levels HB stock are not cheap. |
