Market Outlook

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All Markets Head South

The HousingZone.com indices joined the major markets in shedding value for our session ended April 29, 2005. At month’s end, not even a slide in oil prices could bring the markets into positive terrain. The Gross Domestic Product index grew at the slowest pace in two years, as consumers and businesses cut down on spending in the first quarter. Inflationary pressures raised new concerns about the economy’s strength in the coming months. “The economy hit a pot hole in early 2005,” said Mark Zandi, Economy.com's chief economist. “Higher energy prices have sapped a lot of the economy’s momentum.”

The HousingZone.com Building Product Manufacturers’ Index slid just slightly, off 9.42 points or 0.93 percent, to close at 1004.65. Declining issues overtook advancing issues by nearly 2-to-1 margin. The Builders’ Index dropped in percentage tandem with the national markets, down 27.88 points, or 2.39 percent, to end at 1140.20. Of the 36 stocks tracked in the Builders’ Index, declining issues outpaced advancing issues by a count of 22 to 14.

On the Manufacturing Index side, USG topped our 14-company field by posting first quarter earnings that rose 35 percent higher, with net income of $77 million, or 1.77 per share, compared to net earnings of $57 million, or 1.33 per share in the comparable quarter a year ago. USG cited improved pricing. USG has been operating under bankruptcy protection since June 2001 due to asbestos claims, and the movement of an asbestos compensation bill moving through Congress has boosted shares of asbestos-related stocks. The legislation is currently stalled. USG added 8.83 points, or 26.63 percent and closed at 41.99. USG was the BPM Index’s top dollar and percentage gainer this month.

Mohawk stumbled when its earnings came in below analysts’ expectations and the company cautioned disappointing results in the present quarter. Net income for the company’s first quarter ended April 2 was $70 million, or $1.03 per share. Mohawk earned $66.3 million, or $0.98 per share in the same quarter a year ago. Analysts polled by Reuters Estimates had pegged the company at $1.07 per share for the first quarter. Mohawk said the lukewarm results were due to stiffer raw material and energy costs, and warned of the impact of rising energy dollars. Mohawk shed 6.49 points, or 7.70 percent, and ended the month at 77.81. Mohawk was our top dollar loser.

On the Builders’ side, William Lyon Homes bounded forward on the news that controlling shareholder General William Lyon intends to take the company private. He said he will acquire the minority interest in the company at $82 per share, about a 12 percent premium over the prices ending the week of April 25. Lyon, who currently owns about a 47.8 percent stake in the company’s equity, said he has retained the services of Lehman Brothers, Inc. The transaction will be contingent upon approval by the company’s board of directors. WLS jumped 11.70 points, or 15.25 percent, and ended at 88.40. William Lyon Homes was the Builders’ Index top dollar and percentage gainer.

NVR took a dive after it missed analysts’ estimates for the first quarter. NVR profit rose 17 percent, to $117.9 million, or $14.38 per share, up from $100.6 million, or $12.58 per share earned in the year-ago period. Analysts surveyed by Thomson First Call expected NVR to earn $15.09 per share. NVR said the soft showing was due to rising land and material prices. NVR dropped 66.65 points, or 8.49 percent, and closed at 718.35. NVR was our top dollar loser.