Lennar Swings to Quarterly Loss,
Sees Continued Market Weakness

Lennar Corp., the first major home builder to report second-quarter earnings, Tuesday said substantial charges for land and inventory write-downs caused an even greater second-quarter loss, and a gloomier forecast for the rest of 2007.

Lennar continues "to see weak, and perhaps deteriorating, market conditions" and expects to post a third-quarter loss, said Stuart Miller, president and chief executive of the company, the nation's second-largest U.S. home builder. Analysts had expected third-quarter earnings of 25 cents a share. The company added that it doesn't see conditions improving in 2007.

Shares of Lennar were off 64 cents, or 1.7%, at $38.11 on composite volume of 2.3 million shares, compared with average daily volume of about 2.8 million. Earlier Tuesday, the shares traded at a 52-week low of $37.85; the previous low of $38.63 was set Monday.

Miami-based Lennar, like others in the sector, is slashing prices to compete in a market with an increasing number of new and existing homes. Nervous buyers are canceling orders, while lenders reeling from skyrocketing foreclosure rates are tightening requirements, reducing the pool of potential homeowners.

"These stocks are likely going to see new lows this year," said Alex Barron, a senior research analyst with the Agency Trading Group in Minnesota.

For the fiscal quarter ended May 31, Lennar lost $244.2 million, or $1.55 a share, compared with net income of $324.7 million, or $2 a share, a year earlier. Revenue dropped 37% to $2.88 billion from $4.58 billion a year earlier.

The grim results surprised experts: On average, analysts surveyed by Thomson Financial had expected earnings of five cents a share and revenue of $2.58 billion.

In particular, Lennar's $1.33 per-share charge for valuation adjustments and write-offs of option deposits and pre-acquisition costs stunned analysts.

Last year, major home builders incurred about $5 billion in impairment charges, which include abandoning land options, discounts to move standing inventory and reducing the value of current land for future construction. Most industry watchers figured the worst of the write-downs came last year. "Clearly it looks like we had only hit the tip of the iceberg at that point," Mr. Barron said.

Buyers, meanwhile, continued to walk away. Lennar's cancellation rate was 29%. Those who didn't, paid less. The average sale price of delivered homes fell to $298,000 from $322,000 a year earlier, primarily because of increased incentives.

As the housing market began to crumble, Lennar drew industry criticism for aggressively discounting homes to move inventory. But Mr. Barron applauded the move. "If you can't sell your inventory at the current price, you've got to find a price where somebody's willing to buy it. What other choice is there?"

During the quarter, the company delivered 9,568 homes, down 28%. New orders of 8,056 homes was down 31% and the backlog dollar value fell 56% to $2.8 billion.

Industry experts desperate for a glimmer of hope have been disappointed. Existing-home sales dipped during May to their lowest level in nearly four years, while inventories climbed and prices fell a 10th straight time, according to the National Association of Realtors.

Last week, the government reported May housing starts fell 2.1% amid production cuts as home builders struggled to pare bloated inventories. Some analysts predicted growing inventories will further depress prices. Mr. Barron figures prices will drop an average of 30%.

On Thursday, builder KB Home, the nation's fifth-largest builder measured by 2006 closings, reports its earnings before the market opens. As with Lennar, analysts expect a dramatic revenue decline. Shares of KB Home recently were down 1.5% at $40.08.

-- Josee Rose and Judy Lam contributed to this report.

Email your comments to rjeditor@dowjones.com.