When homebuilder Centex (CTX - commentary - Cramer's Take) reports its fourth-quarter and full-year 2008 earnings on Thursday, it will be in plenty good company. Certainly, some of its problems are company-specific, but the fact that it had to get rid of some of its lands at a loss to get needed cash puts it in the same boat as competitors Lennar (LEN - commentary - Cramer's Take) and D.R. Horton (DHI - commentary - Cramer's Take).
Centex holds more than half of its inventory in land and housing stock in hard-hit areas such as the East, Southeast and Northwest, so its earnings report represents to some extent the luck of the draw. Be that as it may, analysts are expecting fourth-quarter and full-year 2008 losses to deepen, by 15 times and 366 times, respectively, to $2.43 per share and $16.74 per share. Revenues are expected to decline over the fourth quarter and the full year, by 40% and 32%, respectively, to $2.20 billion and $8.18 billion. The stock declined by 38% last year.
The positive highlights of the call, such as they are, will include the following(all of the comparisons are over the first nine months of 2008):
The company should benefit from the effect of the sale of its pest control business to Rollins (ROL - commentary - Cramer's Take), a consumer services company, as well as 10% of its land lot losses for $161 million. This pumped a total of $334 million of cash into the company, however, it should be noted that despite a tax refund of $294 million on the land sale, the book value of the land was $528 million.
The company also sold its home equity segment for $518 million and construction services for $334 million.
Nevertheless, cash, including $71.4 million of restricted cash, declined by 87%.
Overall debt of $4.19 billion is down from $5.56 billion the year prior. Of this $4.19 billion, $569 million was short-term debt, with a carrying interest rate of 6%, almost double the rate of 3.6% the year prior. The rest of the debt was at 6.6%. As a consequence, interest expense increased by 39%.
Inventories of housing stock and land for development declined by 22%.
Free cash flow increased to $504 million from negative $545 million, largely due to impairment and write-offs totaling $1.6 billion.
On the other hand, the above positive highlights will be swamped by the following negative points:
The declines in operating income are almost everywhere geographically, especially in the East (decline of 598% and 20% of revenue), the Southeast (decline of 475% and 11% of revenue), the Northwest (decline of 462% and 19% of revenue), the Southwest (decline of 27% and 20% of revenue) and the Central states (decline of 74% and 10% of revenue). Only Texas reported a 51% increase in income, with 12% of revenue.
Centex sold off $7 billion of mortgage loans in 2008, but still held $747 million of mortgage receivables on its balance sheet.
The earnings report for Centex is expected to be a deluge of red ink.
RELATED STORIES
homebuilders PHM Does Not Look Promising 4/24/2008 12:17 PM EDT The homebuilder reported a loss of $2.75 per share on $1.448 billion in revenue.
At the time of publication, Vijayraghavan had no positions in the stocks mentioned.
Vasu Vijayraghavan was an academic finance professor at the University of Paris who has now turned to a new career as a financial consultant. As an academic, she wrote on corporate governance issues, especially in the European context, and she believes in a long-run and balance sheet approach to stock picking.
Currently, Vasu is working as a consultant for lawyers, doing business valuation. She is a Level II CFA candidate and enjoys writing long/short and earnings calls pieces for TheStreet.Com.
Vasu holds a Ph.D. from the University of Michigan and a B.A. from Harvard University.
RSS FEEDS
PODCASTS
