Homebuilder Losers: Standard Pacific - TheStreet

(Standard Pacific earnings story updated for larger losses and trading volume)

IRVINE, Calif. (

TheStreet

) -- It looks on Thursday as if new-order weakness in the fourth quarter from homebuilder

Standard Pacific

(SPF)

is making the biggest difference to investors.

Standard Pacific was the second homebuilder to report a profit on Wednesday, after

M/I Homes

(MHO) - Get Report

.

That Standard Pacific profit made no difference on Thursday.

M/I Homes finished Wednesday up close to 7%, whereas Standard Pacific was down more than 12% at the close on Thursday.

Standard Pacific has guided investors to profitability in 2010, but investors seemed skeptical based on Thursday's trading trend, as losses mounted throughout the trading session.

The Standard Pacific selling on Thursday afternoon was three times its daily average daily volume of shares -- 5 million shares traded versus 1.6 million average.

Orders are everything right now in the homebuilder outlook.

D.R. Horton's

(DHI) - Get Report

orders surged by 45% in the quarter, for example.

Standard Pacific's net orders grew by only 1%, and its level of cancellations spiked to 21% from 15% in the third quarter.

There is some disagreement within the analyst community as to how much weight investors should be placing on the operating data -- and, in particular, the lack of order growth -- for Standard Pacific.

James Wilson, director of research at JMP Securities, said overall he read the Standard Pacific results as positive, and that the order shortfall from Standard Pacific was tied to a much lower community count, which will be an important point of discussion for the Standard Pacific 2010 outlook.

Standard Pacific's community count was down 28% versus the third quarter. D.R. Horton's much better net order number was achieved while its communities were basically flat in the fourth quarter. Cancellations were also higher, at 21% versus 15% in the previous quarter.

A research note from Wachovia, however, expressed some disagreement with the JMP Securities' analyst outlook.

Wachovia wrote: "We believe investors will focus on orders which increased just 1.5% year over year, versus 34% on average for those builders already reporting with November or December fiscal quarters. Standard Pacific's community count decline of 28% was more severe than the peer group average of 18%, but we still think orders will be viewed with disappointment."

The market didn't seem to be debating for very long the relative importance of Standard Pacific's order shortfall, given the level of punishment in Standard Pacific's share price on Thursday.

The best homebuilder outperformers in this earnings season have not only booked one-time tax based profits, but have outperformed on the operating data, bringing net orders up while cancellations go down.

D.R. Horton and M/I Homes had among the smallest losses in the homebuilder sector on Thursday.

D.R. Horton surged on Tuesday, and sparked a rally among the entire homebuilding sector, after its earnings outperformance.

On Thursday, most of the homebuilders were down, tied to the general market selloff. Some homebuilders were back to where they started the week, with the quarterly profit-triggered boost to other stocks in the sector undone by Thursday afternoon.

Ryland Group

(RYL)

and Lennar were among the homebuilders that had seen gains starting Monday, but were back to Monday opening price levels by the late afternoon on Thursday.

M/I Homes would have turned a small profit even if it had not taken the tax benefit, as was the case with Horton.

JMP's Wilson said the key question for Standard Pacific will be how much community count can improve for 2010 since the homebuilder has been out actively buying new land.

Standard Pacific beat analyst expectations with an earnings per share of 31 cents in the fourth quarter, but -- as was the case with all of the homebuilder profits so far in the fourth quarter -- a one-time tax benefit was the driver of profits. Standard Pacific's net income in the fourth quarter was $82 million, and that included a tax benefit of $94 million. Analysts had been expecting an earning per share of two cents in the fourth quarter from Standard Pacific.

Wachovia's homebuilding research team noted in a research update that excluding tax benefits, Standard Pacific reported earnings per share of negative 4 cents. While Standard Pacific turned in the highest gross margin so far among homebuilder earnings -- 20.3% -- and lower than expected impairments -- $1million -- its costs were higher than Wachovia expected, at 16.5%.

-- Reported by Eric Rosenbaum in New York.

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