J.M. Peters Reports 68% Decrease in Earnings

In what officials said was a result of the softening market for expensive new homes, J.M. Peters Co. on Monday reported a 68% drop in first-quarter earnings even as revenues increased 21%.

The Newport Beach-based home builder reported net income of $1.6 million on revenues of $67.1 million for the first quarter, ended May 31, of its fiscal 1991 year, compared to net earnings of $5 million on revenues of $55.5 million a year earlier.

Responding to the earnings report, Peters’ stock fell 37.5 cents a share Monday to close at $7 on the American Stock Exchange.

“Their revenue was up, but the (profit) margin was down, largely because of the cost of carrying so much inventory,” said Barbara Allen, a housing industry analyst with the Kidder, Peabody & Co. brokerage in New York.

Allen said Peters is spending about $1 million a month on finance and other charges related to maintaining its inventory of about 500 homes and also is spending money on buyer incentives and price reductions as it attempts to move homes in a slow market.

Peters’ low first-quarter earnings, she said, are a result of the company’s focus in Orange County, where inventories have swelled in the $300,000-to-$500,000 price range, in which Peters specializes.

Peters’ spokesman Brian Theriot agreed with some of Allen’s comments but said the company had little choice but to build homes in the last year because it had been issued permits and would have lost the allotments had it not used them.

“We were in a building phase in a number of projects,” he said. “And once you are in that phase, you are pretty much committed to completing or you can lose your permits. It just happens that the areas we are strong in are areas that happen to be oversupplied.”

Peters has rolled prices back on some homes, especially in the overbuilt South Orange County market and offers buyers a variety of incentives, including landscaping and decorating allowances that effectively lower the price of the completed home, but it does so on a case-by-case basis, Theriot said.

In addition, he said that while the company has a total inventory of about 510 homes, about 170 of them are in escrow, leaving only 340 built but unsold. “So that isn’t a traumatic level,” he said.

While many of those escrows are contingent on the buyers selling their current homes, Theriot said, the company is confident that most of its homes will be sold in the coming year.

“It is going to be a slower year--there is no doubt about that,” Theriot said. “But it will be a profitable year.”

Gross profit percentages on housing sales for the first quarter were 13.4%, down from 22.8% a year earlier.

Indicative of the slowdown in the “move-up” market in which Peters specializes, the company said it had firm sales contracts for 146 homes during the first quarter, down 41.6% from 250 in the year-earlier first quarter.

A total of 163 home sales were closed in the first quarter, up from 142 homes in the first quarter of fiscal 1990.

J. M. PETERS’ PERFORMANCE

A drop-off in the profit margin on home sales from 22.8% in the first quarter a year ago to 13.4% in fiscal 1991 quarter cut sharply into net earnings for the period, ending May 31, 1990.

(Dollars in thousands, except per-share data)

Percent 1990 1989 Change Total revenue $69,187 $57,539 20.2 Net earnings $1,581 $5,012 -68.5 Earnings per share $.11 $.36 -69.4 Home orders in 1st Q 146 250 -41.6

Source: J. M. Peters Co.