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2007-01-30

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stories: businessweek.com, morningstar.ca, streetinsider.com, streetinsider.com

In 2006 Lennar Corporation posted profits of $594M on 49,568 new home deliveries but by year end 2007 those numbers were $(1.94) billion and 7,044 respectively. The share price dramatically reflects the change of underling fundamentals—trading well over $60.00 a share in 2005 and for $56.54 a share as late as January 2007—but from there it traded in a straight line down to $12.00 in December 2007. Of the $1.9 billion annual loss $1.25 billion came in the fourth-quarter (the biggest loss in the company's history). The results are nothing less than catastrophic as they eviscerated earnings from the two previous years combined and leave the company reeling.

From the first article:

'Revenue tumbled 49 percent to $2.18 billion from $4.27 billion in the 2006 period, as home deliveries fell 50 percent to 7,044 homes, and new orders slid 50 percent to 4,761 homes with a cancellation rate of 33 percent.

The results topped expectations of analysts surveyed by Thomson Financial, who had forecast a loss of $1.65 per share on revenue of $2.06 billion. Those estimates typically exclude one-time charges such as land write-downs.

The company cut its work force by 35 percent in 2007 and, in November, Standard & Poor's cut Lennar's credit ratings to junk status.

For the year ended Nov. 30, Lennar's losses equate to $12.31 per share, compared with profits of $593.9 million, or $3.69 per share, in 2006. ' The remaining workforce consists of 12,605 as of November 2007.

In fact in 2007 all the sharks smelled Lennar's blood in the water and they ganged up on the struggling company in a seemingly coordinated pre-earnings attack. First company vice president Lennar Marshall H. Ames sold 30,000 shares of common stock, for $18.01 apiece; though he took a $300,000 loss, it further depressed the shares. Then Deutsche Bank and Citigroup joined the chorus of downgrades and finally the options sellers took their chunks of meat.

Since late 2007 the company has been engaged in a frenzied attempt to raise cash, selling nearly 8,300 home sites in Florida, another 741-acre Stoneybrook North development site in North Fort Myers, the upscale Federal Hill project in Maryland and 11,000 home sites for $525 million to Morgan Stanley's real estate unit. The company has not only been taking massive losses on deals like this, it has also had the impact of unloading various joint ventures and writing-down worthless land options as a continuous drag on its net income. From the 2007 10K:

Loss on land sales totaled $1.2 billion, which included $740.4 million of FAS 144 valuation adjustments on the inventory acquired by the Morgan Stanley land investment venture discussed below, $229.7 million of FAS 144 valuation adjustments and $217.6 million of write-offs of deposits and pre-acquisition costs related to 12,500 homesites under option that the company does not intend to purchase.

Another way Lennar is frantically raising cash to survive is moving retail units more aggressively. The company is leading Central Florida in number home closings 'through the first nine months of the year with an average of 52 per month,....'. The share price has responded to "positive" developments like these by rebounding to the $17 zone, and the company even managed to get an upgrade. But sales increasing as home prices are declining at historic rates won't translate to profits on the bottom line. Unfortunately for Lennar, we see little let up to all of these negative trends, so to us they remain solidly "ailing".

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Comments:

implodewatcher at 17:53 2008-08-30 said:
I recently had some Lennar warranty work done on my home and was told by the sub contractor that another large round of layoffs was coming in August/September for Lennar Colorado. This is something told to me, I cannot prove it, but feel the contractor who does a lot of work with Lennar knows as he was informed by several employees. Permalink

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Important: Ailing Builders haven't shut down, but they've suffered significant valuation declines, temporarily halted redemptions, or faced other major business hurdles. Builders on watch may not even have unusual declines relative to peers, but may be posted if it is felt there may be risk of developing a more serious condition in the near future.