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Lennar posts profit, CEO upbeat

Posted: January 7, 2010 10:01 p.m.
Updated: January 8, 2010 4:55 a.m.
 

Lennar Corp.’s stock rose more than 15 percent Thursday after the CEO said he sees a trend in rising prices and anticipates the homebuilder will be profitable this year.

“Prices are no longer free-falling downward and in fact in many instances, are actually starting to stabilize and even recover,” CEO Stuart Miller said. “I feel comfortable today saying that this is a trend and not an anomaly.”

Lennar is the only builder in Valencia’s West Creek, West Hills and River Village developments, Newhall Land spokeswoman Marlee Lauffer said.

“It’s good to see that they’re optimistic about the market in 2010,” she said Thursday.

Lennar is a 15-percent owner in the partnership that owns Newhall Land Development — formerly the Newhall Land and Farming Co. — and has built homes in the Valencia tracts planned by the developer.

Lennar is presently the only builder operating in Valencia, which is in the final stage of its roughly 30-year buildout process.

Lauffer expects Lennar will be a key builder in the development of Newhall Ranch, a Valencia-sized community planned west of Interstate 5.

Miller added that he expects the company, which has operations in 17 states, will ramp up hiring as it begins to build new home developments this year. That’s a clear signal Lennar is betting the real estate recovery, while shaky, will hold.

The remarks followed Lennar’s report that new home orders rose for the first time in more than three years in its fourth quarter. The company also posted its first profit since 2007, thanks largely to a tax adjustment. The builder, however, warned it expects to post a loss in the first quarter.

Miller said the housing market continued to move toward stabilization during the three months ended Nov. 30. Orders of new homes rose 3 percent to 2,652, the first annual increase since the beginning of 2006.

The surge in new orders comes as first-time homebuyers raced to take advantage of an $8,000 tax credit that had been set to expire at the end of November. That deadline never came, however, as Congress extended the incentive through April and threw in another $6,500 tax credit for repeat homebuyers.

Shares in the Miami-based builder were up $2.09 at $15.79 in afternoon trading.

Investors are closely watching major homebuilders like Lennar because their performance is key to the housing market’s recovery, which has been dampened by job losses and tough lending criteria for many would-be buyers.

Sales of new homes plunged 11 percent from October to November to the lowest level since the spring. At the same time, the number of people preparing to buy a home in November fell sharply.

The big question now for Lennar and the rest of the sector is what happens when the buyer incentives go away a month into the traditional spring homebuying season.

“For all these builders, including Lennar, we’re trying to see how sustainable these order trends are going to be ... after the tax credit expires,” said John Tomlinson, a senior analyst with Majestic Research. “That’s definitely a concern now.”

Miller noted the tax credit is helping whittle down the glut of unsold, foreclosed homes that compete with new homes. He expects the housing market will “see some stability” even after the government incentive ends.

“We’ll have to wait and see,” Miller said. “There’s nothing certain about what I’m saying.”

Lennar said it earned $35.6 million, or 19 cents per share, in the quarter ended Nov. 30. It had a loss of $811 million, or $5.12 a share, a year earlier.

The tax gain reported in the fourth quarter came from a change in federal accounting rules that allowed the company to reverse previous writedowns of deferred tax assets.

Without the tax benefit, Lennar would have lost $284.9 million, or $1.15 a share. The tax benefit was offset by charges totaling 89 cents a share related to adjustments in the value of land and other write-offs.

Revenue fell 29 percent to $913.7 million, because of a 22 percent drop in the number of completed home sales. The average sales price of a home dropped 9 percent annually to $238,000 .

Analysts polled by Thomson Reuters were expecting a loss of 48 cents a share, on average, on $863 million in revenue.

The number of buyers who canceled their contracts dropped to 20 percent from 32 percent a year ago.

For the full fiscal year, Lennar posted a loss of $417.1 million, or $2.45 a share, compared with a loss of $1.1 billion, or $7 a share, in 2008. Revenue fell 32 percent to $3.1 billion.

Orders for new homes in 2009 dropped 14 percent to 11,510. The cancellation rate improved from 26 percent to 18 percent.

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