Builder battles ‘unprecedented homebuyer hesitancy’

The deepening recession and rising unemployment took a toll on homebuilding giant Centex Corp. in the final three months of 2008 as the company saw new-home sales plunge 80%. The Dallas-based company said orders totaled only 1,080 units in its fiscal third quarter ended Dec. 31, down 80% from 5,537 units a year ago — far worse than the 45% decline that analyst David Goldberg of New York’s UBS Securities LLC had been expecting. Orders serve as a barometer for revenue the company will receive two or three quarters down the line when a home sale closes. “Abrupt and sweeping changes in the economy caused unprecedented homebuyer hesitancy, which severely [affected] sales early in the quarter,” Timothy Eller, chairman and chief executive of Centex, said in a statement. “As housing starts dropped to record lows and unemployment rose, buyers remained firmly on the sidelines early in the quarter.” The company has responded to the buyer hesitancy by offering incentives and lower prices, which resulted in “better sales volumes in December and into January,” he said. The builder said it will be taking non-cash impairment charges of between $550 million and $600 million in the quarter, reflecting falling land values. However, Centex did make headway in improving its balance sheet. “We expect to report a cash balance of $1.5 billion for the third fiscal quarter, up $200 million from the second quarter,” and the company has no direct borrowing outstanding on its revolving credit facility, Mr. Eller stated. He expects the company to generate positive cash flow from operations in the current quarter and in fiscal year 2010. UBS’s Mr. Goldberg said the weak orders reflect the deterioration in the overall housing market, tough year-over-year comparisons, and management’s slow response to changes in the demand. In a research note, he said the $550 million-$600 million in impairment charges are far larger than the $100 million he had expected. Still, he believed Centex Corp’s management is taking the right steps to get through the housing turmoil.