Reduced demand for new homes, along with difficulties in getting communities opened on time, helped contribute to falling new-home orders at three homebuilders in the fourth quarter.
( BHS) said late Thursday that new orders fell in the latest quarter. The drops follow an order shortfall at
William Lyon Homes
( WLS) earlier this week.
In morning trading, M.D.C. fell 4% to $63.37, Brookfield fell 1.7% to $50.41, and William Lyon fell nearly 2% to $102.95.
The companies typically preannounce their orders weeks before they report earnings. The reduced orders won't affect fourth-quarter earnings -- in fact, M.D.C and Brookfield said 2005 earnings should beat expectations -- but they do present difficulties for the companies' 2006 profit, since sales get booked once customers close on their home purchases.
M.D.C., one of the nation's larger homebuilders, said orders fell 10% to 2,405 homes in the fourth quarter from 2,662 a year earlier. The Denver-based company said orders fell 39% in Arizona as the market returned to a less heated pace. In Virginia, higher home cancellations and a temporary decline in the number of active selling communities led to fewer orders. The company also said orders in Colorado were hurt by a more competitive environment for new homes.
M.D.C. said the lower orders in those markets were partially offset by robust growth in Nevada and California, where orders rose 173% and 20%, respectively, in the quarter. Sales in both markets were helped by strong demand and more selling communities, the company said. Utah also saw an increase in orders due to rising demand.
Two analysts downgraded M.D.C. Friday morning. Friedman Billings Ramsey analyst Craig Kucera cut M.D.C. to market perform from outperform and reduced his price target to $67 from $98. Kucera had expected the company to post a 29% growth in orders in the quarter, not a 10% decline. He lowered his fiscal 2006 EPS forecast for the company by 80 cents to $11.20.
JMP Securities downgraded M.D.C. to market outperform from strong buy, and cut its price target from to $96 from $117. JMP also reduced M.D.C.'s 2006 EPS estimate to $12 from $13.
Brookfield Homes, a smaller homebuilder with communities in California and Washington, D.C., said new orders slid 39% in the fourth quarter to 156 homes from 255 a year earlier. The company blamed the shortfall on weak sales in San Diego and Washington, D.C., along with fewer homes available for sale in California.
Earlier this week, William Lyon Homes, which builds in California, Nevada and Arizona, said new orders fell 7% in the fourth quarter to 460 homes from 493 a year earlier. The company reported a higher cancellation rate in the latest quarter and opened fewer communities than planned, which contributed to the weak sales.