Earnings preview: Centex expected to report loss on charges

OVERVIEW: Dallas-based homebuilder Centex is widely expected to report a hefty loss in the quarter ended March 31. The culprit would be an anticipated impairment charge to write down the value of unsold homes on its books.

Part of the charge will also come from the sale of its bulk-land operation. Centex also unloaded its pest-control business, which should have led to higher cash flow.

That is important, because builders have been grappling with declining revenues and they need cash to remain current on debt payments.

Homebuilders that have already reported results have each indicated that the housing market continued to worsen in the January-to-March quarter.

BY THE NUMBERS: Analysts expect the company to report a loss of $2.43 per share on a sharp drop in revenue to $2.2 billion, according to Thomson Financial. In the year-ago quarter, the company reported a net profit of $1.65 per share on revenue of $3.67 billion. The company's fiscal fourth-quarter loss from continuing operations was 18 cents per share.

ANALYST TAKE: Lehman Brothers analyst Megan Talbott McGrath expects Centex to take a $667 million charge in the quarter, pushing it to a loss.

On the bright side, she expects higher cash flow from the sale of the two bulk-land operation and pest-control business.

"We believe a strong cash generation quarter could lift some of the balance sheet concerns," she said in a note to investors.

WHAT'S AHEAD: Centex has faced troubled with its debt ratios and if that persists could eventually come under pressure from lenders. The company can avoid that by boosting sales, but so far no homebuilder has indicated it sees an end to the market's decline in 2008.