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Centex Hits Hard Times

Shares tumble after the builder posts an earnings miss, cuts guidance and takes a big charge.

Updated from April 26

The latest earnings release from



represented the big wreck that short-sellers have been waiting for among homebuilders.

The builder missed analyst forecasts for its fiscal fourth-quarter earnings and significantly slashed its 2007 guidance late Wednesday. New orders fell 11% on a unit basis. The company also became the first major build to to report a significant charge related to the forfeiture of certain land option deposits due to slowing local housing market conditions.

The stock recently was down $4.71, or 7.8% to $56.04.

Centex reported income from continuing operations of $375.8 million, or $2.92 a share, including the land charge, which totaled 14 cents a share. Analysts expected earnings of $3.11 a share, according to Thomson First Call. A year earlier. Centex earned $334.1 million, or $2.49 a share.

Dallas-based Centex said its new contracts fell 11% to 9,928 units, with orders falling in every market except the West Coast, where orders rose 13%. Orders fell 27% in the Southeast, 18% in the Southwest, 14% in the Midwest and 5% in the Midwest.

The land writedown was done to "align the company's land position to current condition in markets such as Washington D.C., Sacramento, and San Diego," the company said. Builders must report the lesser of the cost of land or its market value on its balance sheets.

On its conference call Thursday , Centex said the writedown didn't involve any land impairment charges for owned land on its balance sheet, but instead was related to forfeitures of deposits for land options. A total of 90% of the $28 million charge was related to foreitures of desposits for land options and other pre-acquisition costs for parcels the company felt were no longer as profitable as originally expected. The remainder of the charge related to cost overruns on completed projects.

Management said it doesn't expect to record any land impairments, which

has been a growing fear for some homebuilder investors, any time soon. The company also expects the current quarter write-down to be the bulk of the total write-downs in the near-term.

"We would expect that this would be the bulk of it, but it's more of an uncertain year. There may be higher than normal levels going forward, but I wouldn't think any greater" than what the company has seen this quarter, Centex said on the call.

Centex lowered its 2007 earnings guidance to $8.50 to $10 a share amid the slowing housing conditions. Centex's previous forecast was for earnings of $10.75 to $11.25 per share, while analysts project earnings of $10.50 a share.

For the first quarter ending in June, the company sees earnings from continuing operations of $1.35 to $1.45 a share, well below the $2.10 a share that Wall Street had forecast.

"It's pretty disappointing top to bottom," says Stephen East, an analyst with Susquehanna Financial, who had a neutral rating on Centex. "Very few people were really expecting them to revise guidance this low for fiscal 2007."

East says it was the worst earnings report he's seen so far from the latest batch of homebuilders reporting. "This shouldn't be happening to a company as diversified as Centex," he says.