Trio of Homebuilders Hurt in Housing Slump

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1. Trio of Homebuilders Hurt in Housing Slump
2. Oil Prices Fall Below Support
3. Congress Grills BP Execs
4. Continuing Jobless Claims Hit Six-Month High

1. Trio of Homebuilders Hurt in Housing Slump

MoneyNews' sister publication, Financial Intelligence Report, has been warning for months that the slumping housing market would bite homebuilders on their proverbial behinds.

Now, as earnings season rolls around, they're feeling the pinch. KB Home and Beazer Homes just warned that their earnings are coming in below current guidance. Homebuilder Hovnanian, which actually beat Wall Street earning estimates, announced a dismal quarter, with profits falling 34 percent.

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Let's start with KB Home. KB is the nation's sixth-largest homebuilder, building homes in housing slump home bases Florida and California, as well as 14 other states.

The company says that it will not meet earlier guidance of $10 per share for the 12 months through November. Instead, KB says it will come in at $8 to $8.50 a year because of cancellations and falling new orders. That's a 20 percent cut in its earnings forecast. Last year, KB earned $9.53 per share.

For the current quarter, which ended August 31, the company expects to earn $1.85 to $1.95 per share. A Thomson Financial poll said that analysts had expected $2.31 per share.

"Our earnings expectations for the third quarter and full year reflect an increasingly challenging housing market, where the supply of new and resale home inventories has built up in recent months in markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years," said Bruce Karatz, Chairman and Chief Executive Officer of KB Home.

Net orders for new homes during the three months ended August 31 fell 43 percent to 5,989 units, when cancellations were added in, said Karatz.

"Orders are crashing and cancellations are spiking," said Eric Landry, a homebuilding analyst at Morningstar Inc. to Bloomberg News. "Next year is the year that's really going to hurt because most of these homebuilders are still working off large backlogs."

Atlanta-based Beazer Homes also slashed its earnings forecast for the year. The company, whose fiscal year ends Sept. 30, now says earnings will be $8 to $8.50 a share, down from its previous guidance of $9.25 to $9.75. That's an 18 percent adjustment.

Beazer reported that net sales over the past two months ended August 31 plummeted 49 percent from a year ago. Cancellations of existing contracts jumped 50 percent from 26 percent last year.

Meanwhile, Hovnanian Enterprises, New Jersey's largest homebuilder, said its fiscal third-quarter profits fell 34 percent. Net income in the quarter, which ended July 31, dropped to $77 million, or $1.15 a share, from $116 million, or $1.76 a share, a year-earlier, says Bloomberg.

"It's just the first of many more to come," said Alex Barron, a homebuilding analyst with JMP Securities LLC, to Bloomberg. "I don't think it's going to bottom out for quite a while."

Despite the dismal report, Hovnanian beat even lower analyst estimates. According to Thomson Financial, analysts expected earnings of $1.10 per share.

The company came in at the mid-range of its previous guidance of $1.10 to $1.20 per share, which it gave last month. Prior to that change, the company had expected $1.40 to $1.50 per share.

That's hardly a soft landing.

Editor's Note:

Housing expert and Yale professor, Robert Shiller, tells Financial Intelligence Report that housing prices nationwide could fall by as much as 40% over the next few years. Find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.

2. Oil Prices Fall Below Support

Yesterday, MoneyNews told you that crude-oil prices were hovering above support levels at $67.50. And in fact, prices closed right at $67.50 yesterday.

We reported that analysts were looking for a big drop if prices went through that price. Today, light, sweet crude for October delivery fell 23 cents to $67.27 a barrel in trading on the New York Mercantile Exchange.

Crude fell on the news that U.S. gasoline and distillate inventories are being helped by higher refinery production. Refinery capacity rose to 93.6 percent, up from 92.9 percent.

The U.S. Department of Energy's Energy Information Administration (EIA) reported that gasoline inventories rose by 700,000 barrels to 206.9 million barrels. That's 6.6 percent above last year's level and above analyst expectations.

Distillate inventories, which include heating oil, also rose a more-than-expected 3.1 million barrels to 139.9 million barrels.

"Heating oil inventories seem to be very adequate at this point," said Tom Bentz, an analyst at BNP Paribas Commodity Futures, to the Associated Press. "We're in good shape going into the heating oil season."

U.S. crude inventories, however, fell 2.2 million barrels last week to 330.6 million barrels. That was almost double the drop that analysts polled by Dow Jones and Reuters had expected. Still, crude inventories are 6.2 percent over year-ago levels.

Editor's Note:

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3. Congress Grills BP Execs

The former head of pipeline-corrosion monitoring for BP in Alaska refused to testify under oath Thursday as outraged lawmakers grilled company officials over the causes of a massive oil spill earlier this year.

Richard C. Woollam invoked the Fifth Amendment of the Constitution in refusing to answer all questions from a House subcommittee. "Based upon the advice of counsel, I respectfully will not answer questions," he said.

Other BP executives apologized and pledged to fix operational lapses on the North Slope that led to the region's biggest ever oil spill in March and the partial shutdown last month of the country's largest oil field.

Lawmakers said BP's mistakes in Alaska -- as well as its responsibility for a deadly refinery fire last spring -- were particularly unacceptable given the industry's record profits and the relatively inexpensive measures that might have prevented the oil spill.

With Congress aiming to wrap up its current session by the end of the month, Thursday's House hearing was not expected to result in any specific legislative action; it did, however, offer lawmakers an opportunity to talk tough to Big Oil at a time of soaring prices and ahead of November elections.

"If a company -- one of the world's most successful oil companies -- can't do the basic maintenance needed to keep Prudhoe Bay's oil field operating safely and without interruption, maybe it shouldn't be operating the pipeline," Rep. Joe Barton, R-Texas, said.

Rep. Diana DeGette, D-Colo., said she was especially disappointed in BP, since it professes in advertising to pride itself on protecting the environment. "I applaud BP for trying to move beyond petroleum, but maybe it should start by sticking to the basics and begin to focus on rudimentary pipe maintenance."

Rep. Bart Stupak, D-Mich., said the spill-related shutdown raises questions about why there weren't redundancies built into the pipeline system that carries Prudhoe Bay oil to market so that the shutdown wouldn't have been necessary.

"It is not Monday morning quarterbacking to suggest BP should have had a plan," Stupak said.

Robert A. Malone, the head of BP PLC's U.S. operations, conceded the company's reputation has suffered, and he vowed to manage Prudhoe Bay in "a safe, efficient and environmentally sensitive way."

In March, more than 200,000 gallons of oil leaked from a 34-inch pipeline that crosses the Alaska tundra. Follow-up inspections mandated by federal investigators led to the discovery of another much smaller leak, as well as "significant" corrosion, according to BP, which briefly shut down the entire Prudhoe Bay field on Aug. 6.

"We have fallen short of the high standards we hold for ourselves, and the expectations that others have for us," said Malone, who has been the chairman and president of BP America since July.

Shortly before the hearing, BP announced in a press release that the company has hired three outside corrosion experts to independently review the incident and make recommendations for improving BP's corrosion prevention policies.

In an effort to address criticism that the company for years has willfully ignored employee concerns about pipeline safety and other environmental issues, BP on Tuesday asked a former federal judge to serve as its ombudsman and hear complaints from workers in Alaska and elsewhere about the company's operations.

"The problem has not been in workers raising concerns -- sometimes it's been our responsiveness," Malone testified.

Prudhoe Bay isn't BP's only problem.

The London-based company faces victims' lawsuits from a deadly explosion last year at its Texas City, Texas-based refinery. And in June federal investigators said BP energy traders cornered the U.S. propane market in the winter of 2004 and illegally manipulated prices. Investigators are also reportedly looking into whether BP manipulated crude-oil and gasoline markets.

Thursday's hearing by the House Energy and Commerce Subcommittee on Oversight and Investigations was the first of several that will focus on BP in coming weeks.

Until last month's partial shutdown, Prudhoe Bay had been producing roughly 400,000 barrels per day, or 8 percent of total U.S. output. BP is currently pumping 220,000 barrels a day and has given no timetable for when it expects to be back to normal levels.

BP officials said early tests show that oil-eating bacteria may have contributed to the Alaska pipeline corrosion. Excrement from the bacteria inside the pipes produces an acid that eats through carbon steel.

Steve Marshall, the president of BP Exploration Alaska Inc., acknowledged that the corrosion problem could have been mitigated by more consistent inspection and removal -- or "pigging" -- of sludge that builds up on the inner walls of oil pipelines, providing shelter for the bacteria.

"Clearly, in retrospect, pigging would have been a positive step we could have taken," Marshall said.

Editor's Note:

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4. Continuing Jobless Claims Hit Six-Month High

The number of Americans collecting state unemployment benefits over the past four weeks rose to a six-month high for the week ending Aug. 26. The unemployment rolls swelled 15,000 to 2.49 million, the most since February, according to the Labor Department.

Meanwhile, the number of Americans filing for benefits for the first time fell to a six-week low. Filings fell by 9,000 to 310,000 in the week ending Sept. 2. The four-week average of initial claims, which smoothes out week-to-week distortions, fell 3,000 to 315,250.

The numbers show fewer people losing their jobs, but also indicate that those collecting unemployment are doing so for longer periods. "Continuing claims dipped to about 2.40 million in late May," says MarketWatch, "and have been slowly rising since."

MarketWatch points out "about a third of the 7.1 million official unemployed had been out of work longer than 15 weeks, which 18.4 percent had been out of work longer than 27 weeks." Half of the unemployed found work after 8.5 weeks, but the average unemployed person waited 17.4 weeks. Unemployment benefits typically end after 26 weeks of collecting.

The AP says that the numbers reflect the fact that businesses have scaled back their hiring efforts, but have not laid off large numbers of workers.

The three states with the worst job market for the week ending August 26, were New York, Kentucky and North Carolina. New York's unemployment rolls swelled by 4,488 because of layoffs in the transportation and service industries. Kentucky's manufacturing industry laid off the most, with an additional 1,847 workers on unemployment. North Carolina lost 1,195 jobs in the week.

Editor's Note:

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Editor's Notes:

Housing expert and Yale professor, Robert Shiller, tells Financial Intelligence Report that housing prices nationwide could fall by as much as 40% over the next few years. Find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.
In April 2004, Financial Intelligence Report predicted that oil prices would skyrocket from $29 per barrel to over $60 within a year. That forecast was dead-on. Our investors made a fortune on that advice. Since then FIR has been warning that oil prices would collapse in the next 12 months and could go as low as $40 per barrel. Discover the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go Here Now.
Find out how to triple your money with energy investments. Go here now.
Discover how to outperform stocks by 500% this year with one of the safest investments available. Go here now.
Is your body a filter for toxins? According to one environmental study group, U.S. Drinking water contains more than 2,100 toxic chemicals that can cause cancer, yet the EPA has established enforceable safety standards for only 87. Protect your health now.