An Ominous Message From Centex

When Centex(CTX Quote) speaks, investors listen.

The company's huge earnings miss in the spring served as one of the first indicators of the bad news that punished the homebuilder sector in the following months.

Centex's news this week is even worse, and it could possibly herald a replay of that spring selloff, especially given the sector's recent rally.

Late Thursday, Centex cut its second-quarter earnings guidance in half and said net orders for period ended Sept. 30 fell 28%.

The Dallas-based company lowered its estimate for the quarter to 65 cents to 75 cents a share from a July projection of $1.40. Analysts polled by Thomson First Call had an average estimate for earnings of $1.33 a share.

Centex's preannouncement was driven by the company's desire to cut down land positions aggressively, said Susquehanna Financial analyst Stephen East in a research note.

Centex expects its option deposit and pre-acquisition walk-away costs on land to be in the $85 million to $95 million range this quarter. Additionally, land valuation adjustments are expected to be about $40 million to $45 million, which includes the company's share of such amounts for a joint venture.

"We see this as a painful but required piece of the strategy to get the balance more in line with the realities of today's housing environment," East wrote. "This charge is meaningful for the quarter, but over the last three quarters, charges (pre-tax) equivalent to only about 4% of the equity have hit the income statement."