Building Woes for Lennar

Earnings slumped in the most recent quarter as new orders fell. But investors sat tight on Tuesday

Lennar Corp. (LEN) said Sept. 26 that the cooling housing market has hurt its third quarter profit and business outlook. But investors had braced themselves for worse.

The Miami-based homebuilder reported that earnings during the three month period ended Aug. 31 amounted to $206.7 million, or $1.30 per diluted share, compared to earnings of $337.3 million, or $2.06 per diluted share, in 2005.

Before this news, the mean earnings per share estimate for the quarter had been $1.275 per share, according to the San Francisco research firm StarMine. The stock price was edging up 0.3% to $47 per share in afternoon trading on the New York Stock Exchange.

Lennar's bad luck might not have come as a surprise to a housing bear. "The U.S. housing market has continued to deteriorate, trailing down further and faster than anticipated," explained Stuart Miller, Lennar's president and CEO, in a press release.

His company's revenues had surged 20% to $4.2 billion during the quarter, as housing prices still remain higher on average this year compared to last. But new home orders sank 5% to 11,056 homes amid the recent slowdown.

Lennar also revised its fourth quarter EPS target downward to between $1 to $1.30 per share. "Although the economy remains strong and unemployment and interest rates remain relatively low, it is not clear that the homebuilding downturn has yet found a floor," Miller said. StarMine says analysts' mean EPS estimate for the next quarter had amounted to $1.598.

Miller is planning to battle back by managing inventory, slashing construction and overhead, and tapering back on production. He's also limiting the company's land purchases, among other things, in an effort to improve its cash flow and balance sheet from what he describes as "already excellent positions."

While it may be expert at putting together a four-bedroom Colonial, Lennar's efforts to rebuild its profitability could prove far trickier.

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