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2 More Builders Issue Warnings

Standard Pacific and Lennar lower earnings estimates as orders for new homes decline.

September 09, 2006|From Bloomberg News

Two more home builders gave new signs of a weakening real estate market Friday as Standard Pacific Corp. and Lennar Corp. lowered their earnings estimates amid slumping orders and rising cancellations.

Irvine-based Standard Pacific, which builds houses in California, Texas, Arizona and Colorado, will lower its earnings forecast for the third quarter and 2006, after new-home orders fell 58% in July and August from a year earlier.

Standard Pacific said it would update its forecast for the quarter at the end of October. Previously, the company said it expected to earn 80 cents to 85 cents a share in the third quarter and $5.10 to $5.40 a share for the year.

"We expected to be down year over year, but not to this degree," said Andrew Parnes, Standard Pacific's chief financial officer. "Clearly it's turning out to be a more difficult situation than we thought at the beginning of the year."

Shares of Standard Pacific fell 11 cents to $22.83. The stock is down 47% during the last year. Friday's statement was released after the close of the stock market.

Miami-based Lennar, the second-largest U.S. home builder by market value, said it expected to report that profit fell in its fiscal third quarter, the first decline in six years, after a slump in demand forced the company to offer incentives to buyers.

Earnings for the three months ended Aug. 31 are expected to total $1.25 to $1.35 a share, down from $2.06 a year earlier, the company said. Net new orders fell about 5%, less than competitors KB Home or Beazer Homes Inc., which this week reported declines of more than 40% while lowering their earnings estimates.

Lennar's profit margins are eroding as it offers upgrades such as stainless steel appliances and hardwood floors to lure buyers. The inventory of new homes for sale by U.S. home builders swelled to an all-time high of 568,000 in July as higher mortgage rates brought an end to the five-year housing boom.

"The market is very weak and may be staring at a hard landing," said Paul Puryear, managing director of Raymond James & Associates in St. Petersburg, Fla. "Housing is a key driver in the economy, and consumers are in for some bad news in regards to the value of their homes."

Shares of Lennar fell 54 cents Friday to $42.71. Lennar is scheduled to report earnings Sept. 26.

Lennar's new forecast is 33% below its previous projection for fiscal third-quarter earnings of $1.90 to $1.95 a share. Analysts had expected $1.81 a share, according to the average of 16 estimates in a Thomson Financial poll.

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