Centex posts a big loss

A sobering fourth-quarter report from Centex (CTX) shows why the Fed’s rate-cutting days probably aren’t over. The Dallas-based homebuilder lost $908 million, or $7.34 a share, from continuing operations in the latest quarter, compared with a year-ago loss of $23 million, or 19 cents a share. Revenue dropped 36% from a year ago to $2.31 billion, as house-sale closings dropped 33% from a year ago and prices tumbled 15%. The stark numbers left CEO Tim Eller pointing to lower inventories, a big land sale (made at a $395 million loss) and some debt reduction as the quarter’s main accomplishments.

“We were disappointed with our lack of operating earnings, but believe these actions position us to continue to build an even stronger cash position and to restore operational profitability in the future,” Eller said. “Notwithstanding the outlook for a weak housing market, we are committed to delivering quality homes for our customers and to building a better Centex.”

Problems in the housing market, where inventories remain elevated despite a sharp drop in prices over the past year, have been a significant factor in the Fed’s decision to cut interest rates by 3.25 percentage points since September. And though the Fed signaled Wednesday that it will remain vigilant about fighting inflation, suggesting a pause in the rate-cutting campaign, observers such as Westwood Capital managing director Len Blum are projecting more cuts by year-end, as the economy continues to struggle along. He doesn’t expect to see investors return in numbers to the debt markets until house prices fall in line with rental rates. That could mean a further house-price decline of at least 10%, he says - which would be more bad news for capital-strained banks, and for housebuilders like Centex.