Home Builder J.M. Peters Has First Loss in 3 Years : Housing: Company sold only 79 homes in second quarter, down 75.5% since last year. Sales of new and resale homes have been dropping steadily in Southern California for months.
High-price home builder J.M. Peters Co. reported Thursday its first loss since going public in 1987 and said it sold only 79 homes in the second quarter, down 75.5% from the same period last year.
Peters reported a loss of $451,000 for the three months ended Aug. 31, contrasted with net earnings of $3.5 million for the second quarter of its fiscal 1990. A year ago, the company sold 322 homes in the quarter.
The company’s poor performance reflects the sharp slowdown in the Southern California housing market. The slump is clear in permits sought by builders. In July, only 569 construction permits were issued in Orange County--the lowest monthly total since 1982.
“The financial results are reflective of the continued downturn in sales for single family move-up market housing in most areas of Southern California,” the company said in a prepared statement.
Industry analysts said that sales of new and resale homes have been dropping steadily in Southern California for months, a buyer reaction to high prices and growing consumer concern about the national and regional economies. The crisis in Iraq has shaken consumer confidence further as recession and inflation fears rose.
Peters is one of the county’s best-known home builders and one of only a handful of publicly traded residential developers in the nation. The company specializes in luxury “move-up market” tract homes in the $350,000 to $500,000 price range, which makes it particularly vulnerable in bad economic times.
Its sales revenue from escrows that closed in the second quarter plunged nearly 10% to $51.1 million from $56.6 million a year earlier. The company said it was hurt by increased finance and marketing costs on homes and land in various stages of development.
Peters is not the only builder with problems. Neil Dimick, Costa Mesa-based national director of real estate services for the international accounting and consulting firm of Deloitte & Touche, said the industry--which has been struggling for much of the year--sustained a tremendous blow in August when Iraq seized Kuwait and set the world teetering on the brink of war and economic chaos.
He said builders and subcontractors have been laying off workers for most of the past month, and estimated that Southland construction payrolls are down about 15% since mid-August.
But Dimick said he believes home builders will fare better in the current economic crunch than in the recession of the early 1980s because there are fewer homes built and standing empty now than a decade ago.
That, he said, is because most builders had seen the warning signs and began cutting production months ago. The cutback showed up dramatically in July when the Construction Industry Research Board reported a large statewide drop in residential building permits. Dimick said he believes the number of permits issued in August will also be well below the norm.
“What Peters hit is the same wall most other builders, except those doing entry-level homes, have hit,” Dimick said. “Because it is public and has to report its finances, Peters has visibility.
“But I know 10 other builders in as bad or worse shape that aren’t public. There are a lot of boards of directors meeting these days to try to decide how to get rid of homes.”
People have quit buying homes because they no longer are confident of the economic future, said Barbara Allen, housing analyst for Kidder, Peabody & Co. in New York. Allen on Thursday downgraded her recommendation on Peters stock from “hold” to “sell.”
The company’s stock price, which had been edging upward in recent weeks, dropped 62.5 cents a share Thursday, down 16% to $3.25 a share as word of the quarterly loss spread.
Allen said she now believes there is a good chance Peters might post its first-ever annual loss when its current fiscal year ends Feb. 28.
She said she believes the U.S. economy plunged into recession in the middle of the second quarter and that things are worsening, particularly for home builders, whose high-ticket products are at the top of the list of things people quit buying in a recession.
“It appears, in talking to most of the companies that I follow, that July and August were really bad months, and (Iraqi President Saddam) Hussein didn’t help,” Allen said. “The Middle East situation made the number of home sale cancellations go way up because of buyers’ uncertainty.”
She said officials at Peters have told her the company had one more cancellation than sale during the past four weeks, for “net sales of minus one home.”
As of the end of the quarter, Peters said it had a backlog of 197 homes contracted for but not yet out of escrow, down 64.3% from a backlog of 552 homes at the end of its fiscal 1990 second quarter.
Value of the company’s backlog of orders as of Aug. 31 was $70.9 million, down 70% from $236.8 million a year earlier.
Reflecting the industrywide drive to move properties by slashing prices, Peters said its gross profit margin on housing sales in the second quarter fell to 14.8% from 19.7% a year earlier.
The average price of a home in Peters’ Aug. 31 inventory was $359,898, down from an average of $428,985 the previous year.
