Summary: The U.S. housing slowdown is showing no sign of abating, according to homebuilders Toll Brothers and Beazer Homes USA Inc. Orders at Toll Brothers skidded 56% and revenue dropped 10% in fiscal Q4. The company also expects to take Q4 write-downs of $50-100 million on both the land it owns and has options to buy, sharply up from a prior forecast of $4 million. The charges will reduce net EPS by $0.18 to $0.36. Cancellations have also soared to 37% of contracts in Q4, up from 18% in Q3. Beazer, meanwhile, reported a 44% drop in quarterly earnings and a 58% drop in fiscal Q4 orders. Beazer reported net income of $91.9 million, or $2.19 a share, down from $164.4 million, or $3.61 a share, a year earlier. Toll is a luxury homebuilder and Beazer primarily a builder of first-time homes, so their disappointing reports imply weakness across the entire sector. Consumer spending has been curtailed by rising interest rates and high energy prices, and prospective home buyers appear increasingly reluctant to enter the market before a bottom is in view. Though the companies' reports were not good, they were largely expected by the market; TOL took a small hit and then recovered by the close of trading and Beazer managed to show a slight gain.
Related links: Earnings coverage: Wall Street Journal • Commentary: Housing Stocks Stabilizing But No Reversal in Sight • Time to Start Looking Beyond the Housing Slump • WSJ Economist Survey -- Housing Slowdown to Continue; Recession a Possibility
Potentially impacted stocks and ETFs: Toll Brothers Inc. (TOL), Beazer Homes USA Inc. (BZH) • ETFs: iShares Dow Jones US Home Construction (ITB), SPDR Homebuilders (XHB), and iShares Dow Jones US Home Construction (ITB) have either TOL or BZH as a top-ten holding
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