Lennar’s profit dives amid slump

Lennar Corp., the largest U.S. home builder by revenue, said Tuesday that earnings plummeted 73% during its fiscal first quarter as the worst housing slump in more than a decade scared away potential buyers.

Chief Executive Stuart Miller said the spring selling season, when home builders usually get the bulk of their orders, failed to materialize, just two months after telling investors this year would be as good or better than 2006.

“Given the state of the market, we do not expect to achieve our previously stated 2007 profit goal,” Miller said in a statement. “We are not comfortable providing a new earnings goal at this time.”

Miami-based Lennar’s net income for the three months ended Feb. 28 declined to $68.6 million, or 43 cents a share, from $258.1 million, or $1.58, a year earlier, as the biggest drop in U.S. home sales since 1990 battered the industry.

Home builders’ profits are falling as their inventories of unsold homes swell and companies increase incentives to entice buyers. Rising foreclosure rates among borrowers with poor or limited credit histories are pushing even more homes onto the market.

The average estimate of 13 analysts surveyed by Bloomberg was for first-quarter earnings of 39.5 cents a share, excluding certain gains and losses.

“The business is still very soft,” Robert Curran, a home building analyst at Fitch Ratings in New York, said in an interview.

Lennar said Jan. 17 that its 2007 earnings would match or beat 2006 profit of $593.9 million, or $3.69 a share. On Tuesday, the company said it couldn’t predict when a recovery would come.

Consumers have held off on buying houses on concern that the price of their house will fall, or on hopes they’ll get a bargain later.

Demand during the spring selling season, which starts in February, “has not yet materialized,” Miller said in the statement. The troubles of sub-prime lenders, which have been forced to curtail lending as default rates rise, also have eliminated some potential buyers, he said.

On a conference call, Miller said, “Market conditions are very difficult across the country. The industry is continuing to be challenged to adjust home prices and land values as well. It is unclear today where there is another shoe to drop.

“As we look through the first quarter, there was a very, very small percentage that canceled because of mortgage products that had evaporated or the sub-prime issue,” Miller said. “As we went through each division, it still seemed that this was going to be fairly contained.”

Revenue for the quarter plunged 14% to $2.79 billion from $3.24 billion as the number of homes delivered fell by 3.9% to 8,566.

The average selling price dropped 7% to $303,000 as sales incentives more than tripled to $45,500 per home. The company’s cancellation rate was 29% in the quarter.

Shares of Lennar fell 4 cents to $44.50 on Tuesday. The stock tumbled 15% this year, compared with a 16% drop for a Standard & Poor’s measure of home builders. The Standard & Poor’s home builders index fell 1.4% on Tuesday.