Centex, KB take charges
NEW YORK – Home builders Centex Corp. and KB Home said on Tuesday they would take charges to reduce their land positions in a sign the weakest U.S. housing market in decades may not yet have bottomed.
Meanwhile, billionaire investor Carl Icahn said he had increased his stake in another home builder, WCI Communities Inc., and would pressure management to improve performance. WCI shares jumped nearly 11 percent in early trading.
Centex said it would report a quarterly loss from continuing operations for its third quarter, which ended in December, on sharp drops in home closings and sales.
“We are navigating through one of the most challenging housing environments in the past 25 years,” Chief Executive Tim Eller said in a statement.
Deutsche Bank analyst Nishu Sood said in a note to clients: “Centex’s preliminary third-quarter results reflect continuing housing market challenges, belying the notion that the housing market has already turned a corner.
“The company’s announcement is a familiar mix of earnings below expectations, orders that continue to fall and ongoing asset impairments,” Sood added.
In recent months, falling prices and rising cancellations have led home builders to repeatedly slash their forecasts as many buyers either walk away from contracts or press for additional incentives before signing.
Shares of home builders, as measured by the Dow Jones Home construction index are down about 30 percent over the past 52 weeks.
Centex said it expected to report a third-quarter loss of $2 per share from continuing operations after certain items.
Excluding those items, the company said it would report a profit of 75 cents per share.
“We are responding by reducing our land position and inventory, aligning our workforce to the current sales pace and improving our overall cost structure,” CEO Eller said.
Separately, rival KB Home said it would record noncash charges of $88 million in the fourth quarter for abandoning certain land options contracts and $255 million for inventory impairments.
The company said the charges were in line with its previous forecast.
Centex said it recorded 8,360 home closings in the quarter, down 12 percent from a year earlier. Net sales fell 24 percent to 6,139.
The company said it had canceled or intended not to exercise land option contracts involving about 37,000 controlled lots because of the decline of housing activity.
Centex shares fell $1.21, or 2.3 percent, to $51.95 in morning New York Stock Exchange trade. KB Home was down 25 cents at $49.10, and WCI was up $2.28 at $23.30.
WCI Communities shares have lost 16 percent of their value over the past year, but have jumped more than 47 percent since Icahn first disclosed his stake. On Tuesday, Icahn said he has increased his stake in WCI to 6.1 million shares, or a 14.6 percent stake, from 1.7 million shares.
Icahn said in a regulatory filing that he planned to contact WCI about ways to “unlock the inherent value of the shares.”