Centex Takes a Hit
From Housing Market

Centex Corp. said it plans to take nearly $1 billion in charges as the company reported preliminary fiscal second-quarter results reflecting the continued deterioration of the housing market.

The Dallas homebuilder said orders for the quarter were down 13% to 5,953 units, while sales were off 14% at 7,350 units.

"The housing market continues to be extremely difficult. These adjustments reflect the market's further deterioration over the quarter and the significant effects of the mortgage-market disruptions," said Timothy R. Eller, chairman and chief executive of Centex, adding that the company remains focused on "selling homes and generating cash."

The company expects to record an $850 million impairment on its neighborhood and land inventory, and a $40 million write-off on land held by its joint ventures.

The company also expects to write off option deposits and pre-acquisition costs of about $40 million and record a $65 million goodwill impairment. In addition, Centex's financial-services unit will record a $60 million provision for future mortgage- market losses and credit exposures. In the fiscal first quarter, Centex recorded pretax impairments and other land charges of $193 million.

On Thursday, Moody's Investors Service cut Centex's investment-grade credit rating, along with those of several other builders, to junk status, citing extremely weak industry conditions through at least 2009, "with any sector recovery likely to be listless for some time after that." Moody's also said Centex has had difficulty unloading excess inventory, is facing rapidly declining home deliveries and revenue generation, and has close to a seven-year lot supply.

Centex is the just the latest home builder to take huge inventory impairment charges. Book values at the five largest home builders -- Centex, D.R. Horton, Lennar, Pulte and Toll Brothers -- have fallen from their peaks last year by as much as 15%. But that still leaves all of them with assets sporting higher valuations than before the excesses of the housing boom kicked in at the start of 2005.

Centex will release final results on Oct. 23.

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