Transcripts

Lennar's Latest Losses

SUSIE GHARIB: A somber outlook today from one of the nation's largest home builders. Lennar said that its quarterly earnings plummeted and its CEO doesn't see the U.S. housing market stabilizing anytime soon. Lennar shares tumbled in reaction, but by the close, recovered most of their losses. The news also pressured stocks on Wall Street as investors continued to worry about the impact of the slumping housing market on the economy. Scott Gurvey has more on Lennar.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lennar's report was just as expected, which is to say, terrible. The company posted a 73 percent drop in profit for its fiscal first quarter. Lennar said home deliveries fell 3.8 percent, while its average selling price fell 7 percent. Lennar earned $0.43 a share compared to $1.58 in the first quarter of last year. Analyst Paul Puryear of Raymond James, which has done business with Lennar, says it is a matter of too much building and too many people looking for a quick profit in real estate.

PAUL PURYEAR, HOME BUILDING ANALYST, RAYMOND JAMES: It's largely overbuilding. I think the second thing is -- I think the market, meaning the builders, grossly underestimated the impact of the speculative buyer and the minute he exited the market -- and I think he has, for the most part, exited the market -- the whole demand equation looked different.

GURVEY: Unsettling Wall Street, Lennar withdrew its forecast for 2007 earnings. In January, it predicted 2007 earnings would match those of 2006, in spite of a 20 percent drop in home deliveries. Today, CEO Stuart Miller said in a statement quote, given the state of the market, we do not expect to achieve our previously stated 2007 earnings goal and we are not comfortable providing a new earnings goal at this time. Lennar warned that housing trends are being exaggerated by the recent problems with sub-prime mortgages. KB Home said something similar last week when it reported an 84 percent decline in profit. But analyst Tom Smith of Standard & Poor's says the sub-prime impact on Lennar's total revenue is only 5 percent.

TOM SMITH, HOME BUILDING ANALYST, STANDARD AND POOR'S: Lennar, I think, is doing pretty well compared to the home building industry altogether. It's one of the bigger players and the bigger players have diversified enough so that they can withstand some hits in some particularly bad markets where they really have to write down quite a bit. Also, they have access to capital that some of the smaller players don't and that will help them survive.

GURVEY: Most analysts say it will take the remainder of this year to work through the industry's inventory excesses. Most do not expect the housing market to stabilize until 2008. Scott Gurvey, NIGHTLY BUSINESS REPORT.