Home Sales, Confidence, Retailers Fall

123jump.com Staff
25 Sep, 2007
New York City

August existing U.S. home sales declined. The sales declined the most in the West but prices in the Midwest declined only 0.7% from a year ago. The consumer confidence fell in August to 20-month low and is expected to fall further. Retail stocks in the morning trading in New York fell on lowered profit forecast from Lowes and smaller rise in same stores sales in September from Target. Oil below $80. European markets are mixed. Australia closed at a record high ahead of BHP annual report.

[R]10:30AM New York – Existing home sales fell. Consumer confidence declined to a 20-month low. Retailers declined.[/R]

After the first hour of trading market averages in New York are heading lower. Dow, Nasdaq, and S&P 500 fell between 0.3% and 0.2%. Lennar, one of the largest home builder reported, five decade record loss of $514 million on 41% decline in revenue. The company also reported new orders fell 48% and cancellation rate jumped to 32%.

The Conference Board index of confidence fell to 99.8 in September from 105.6 in August.

Existing home sales in August fell 4.3% from July to annual rate of 5.5 million or declined 12.8% from a year ago. Median home prices gained 0.2% to $224,500 from a year ago and fell 0.2% from July price of $228,700.

Total housing inventory rose 0.4% at the end of August to 4.58 million existing homes available for sale, which represents a 10 month supply at the current sales pace, up from a 9.5 month supply in July.

Existing home sales make up more 84% of total home sales and new home sales are about 16% of home sales. Total home sales for the year are expected to be between 6.5 million and 7 million homes.

Existing home sales in the Northeast fell 2%, in the Southeast declined 2.7%, in the Midwest slumped 5.2%, and in the West plummeted 9.8%. The prices in the regions declined between 0.7% in the Midwest to more than 3% in all other regions.

Retailers fell in the morning trading on revised outlook from Target ((TGT)) and Lowe’s ((LOW)). Target after the close yesterday lowered its same store sales forecast between 1.5% and 2.5% from 4% to 6% and weaker than expected traffic. The home improvement chain Lowe’s blamed drought on slower than expected sales and lowered its earnings guidance for the year ending February 1, 2008 to the low end of its earlier forecast of $1.97 and $2.01 per share.

The company CFO Robert Hull in a prepared statement to be presented in a conference aid that """"""""external pressures weigh on our near-term performance, but looking past the current cycle, we see many opportunities for continued sales and earnings growth and increasing cash flow from operations.”.

""""""""For the three year period, total sales are expected to increase between 8 and 11 percent per year, while earnings per share are expected to average 12 to 15 percent growth per year across the three years. Improving earnings and solid working capital management will drive compound annual growth in cash flow from operations of approximately 15 percent. The current pressures will likely continue into 2008, so we expect our earnings performance to improve from mid-single digit growth in 2008 to high-teens in 2010,"""""""" Hull said.

[R]9:00AM New York – Lennar report $3.25 per share loss in the third quarter.[/R]

Lennar Corp. reported third quarter net loss of $513.9 million from $206.7 million a year ago or loss of $3.25 earnings per share compared to income of $1.30. The company recorded $344.7 million in write down related to land sales and losses of $127.4 million from subsidiaries.

Revenue in the quarter fell 44% $2.34 billion and sold 7,266 homes, 41% decline from a year ago at 6.3% lower home price of $296,000

Gross margin on home sales excluding valuation adjustments fell to 14% in the third quarter from 19.5% in 2006. Including the valuation adjustment the gross margin fell in the third quarter to 1.0 million from $729.2 million or 18.7% from a year ago.

Selling and general administrative expenses were reduced by $122.3 million or 29% in the quarter on reduction in staff and as a percentage of sales the margin increased to 14% from 10.9%. Operating loss in the financing subsidiary was $5.2 million compared to profit of $61.7 million a year ago.

Lennar ((LEN)) fell 5.5% in the pre-market trading. Lennar stock has fallen from a peak of $56.54 in February of this year and traded as high as $66.44 in January of 2006.

[R]6:00AM New York, 7:00PM Tokyo, Realty stocks lift Tokyo stocks higher. Bank of Japan to wait for global markets to stabilize before hiking interest rate.[/R]

Japan opened the week higher, climbing 0.55% or 89.12 to 16,401.73 buoyed by gains in realty stocks and electronic companies.

Of the Nikkei 225 stocks, 136 gained, 81 slipped and 8 traded unchanged. Realty concern Tokyu Land Corporation led the rise in the index shares. Automakers also rose. Nisshin Oillio led retreating stocks.

Minutes of last week’s Bank of Japan meeting released today show policymakers believe the economy will continue to grow in step with the twice-yearly outlook made in April this year. The bank also revealed that it will keep interest rates on hold at 0.5% until global credit markets return to normal.

While the benchmark interest rate was kept low by 8 to1 vote, Governor of the Bank of Japan Toshihiko Fukui said last week keeping borrowing costs low may encourage risky investments. Authorities are struggling to stave off a decade-old deflation.

Japan’s GDP declined by an annualized 1.2% in the second quarter and consumer prices, a measure of inflation, slid 0.1% in July as consumer prices grew by half the pace of the first quarter, a government survey showed recently. The board will meet again on October 31.

Yen rose against the dollar and it traded as high as 114.55 in Tokyo at close. Yen has advanced 1% against Aussie dollar to 98.65 and 2.1% to 84.12 against New Zealand dollar. The dollar is likely to come under renewed pressure after the release of home sales statistics this morning in New York.

Hino Motors Ltd. Revised its sales forecast ending the six months at the end of September by 9% to 665 billion yen and net income by 17% to 11 billion yen. The company expects the international unit sales to increase by 12%.

However, realty stocks continue to gain after the Ministry of Land, Infrastructure and Transport reported Japan’s commercial land prices rose 1% overall, the first increase since 1991, while residential land price increase narrowed to 0.7% from 2.3%.

The strike at U.S. automaker General Motors, which threatens to spread to Mexico and Canada, also spurred Japanese automakers whose niche market is in North America. Toyota generated 70% of its operating profit in North America last year, while Honda generated 55% of its sales in the region.

Industry analysts believe that the nationwide strike may cost the company a loss of daily sales of 12,200 vehicles in the U.S. Buyers may turn to Japanese and European makers to meet their needs.

Toyota firmed for the first time in 3 days to 1.22%, while Honda edged up 1.6%.

Of the index shares, Tokyu Land Corporation climbed 8.32%, NGK Insulators gained 5.93%, Tokyo Dome Corporation soared 5.84%. Fuji Electric added 5.71% and Mitsui Engineering and Ship Building edged up 5.33% on news the Baltic Dry Index, the benchmark for bulk shipping fees, had increased to a record. Other ship companies gained as well with Kawasaki Kisen and Mitsui O.S.K. soaring 4.95% and 4.60 respectively.

Leading the decliners in the index was Nisshin Oillio shedding 5.66%, Mitsubishi UFJ Nicos lost 5.31%, Topy Industrials Limited declined 5.20% and Trend Micro Corp slipped 4.98%. Adventest Corporation fell 4.7% after reports that the world’s biggest supplier of memory chip tester’s operating profit may fall 1% to 56 billion yen.