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alstry (36.00)

Less Bad SUCKS!!!!

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October 22, 2009 – Comments (5)

We have been hearing about revenues declining down, but better than expected for a few years now.  Especially in the homebuilding industry.  Let's take a look at what happens when revenues decline sequentially for a few years....even though the rate of decline inproves each year.

For ease of calculation we will start at 100 and assume revenues decline 50% in the first year.....we get to 50.

In the next we we see a 20% improvement in rate of decline to only 40% and now we are at 30.

Finally, as things are really looking up....revenues only decline 30%, a 25% improvement.... and now we are at 21.

Hmmmm.  Revenues went from 100 to 21 but each year they were better than expected????  About an 80% loss of revenues over 3 years.....probably most of the work force fired.....and the business is probably unable to service debt and pay overhead on this low revenue stream.

If you look at many public homebuilders, you might be shocked how much their revenues have declined over the past 3 years....AND THAT IS AFTER MANY OF THEIR COMPETITORS HAVE GONE OUT OF BUSINESS.

The irony is many homebuilders are still saddled with the same or similar debt load they had a few years ago.....meaning that servicing the debt today is much harder selling fewer homes at lower margins.  Some are even paying much higher interest rates.

But since homebuilders capitalize debt and don't expense it.....much of the impact is not seen in the quarterly income statement but rather capitalized and added to inventory.....why do you think homebuilders inventory keeps staying so high quarter after quarter even though they are liquidating?  It is also a key reason why we are seeing "one time" writedowns now going on for three years.

Ask yourself, how can a homebuilder like Standard Pacific service almost $2 Billion dollars of debt (some at a rate in the double digits) when its revenues have contracted to less than a $1 Billion per year on tight margins?  Soon you will learn that the primary reason for some companies remaining public is not because they are viable business.....but they are viable credit default swap playing machines.  Much more money can be made playing credit default swaps on public companies than can ever be made building homes....especially in this environment.

The problem is not only are homebuyer/citizens the losers with crashing home values due to over supply from relative indifference to running a profitable business....but so are pension funds/municipalities/ and mutual funds for usually being on the wrong side of the trades.

Get ready for a lot of pension fund stories breaking in the news over the next few weeks....as we are still losing over 500,000 per week and practically no one is hiring.

5 Comments – Post Your Own

#1) On October 22, 2009 at 9:07 AM, alstry (36.00) wrote:

Nucor Q3 sales $3.12 bln vs $7.45 bln

When you have sales declines like this a few times in a row....pretty soon you don't have much sales.....even if it is better than expected.

 

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#2) On October 22, 2009 at 11:18 AM, Rebkong1 (< 20) wrote:

how does this possibly end good for american alstry?? you have done a fabulous job outlining its decline..but tell me how  you possibly think this is going to end up good??  

 

b/c its not 

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#3) On October 22, 2009 at 12:25 PM, jesusfreakinco (28.93) wrote:

Al - you called this one...

Conservatory Lot Sells at Tax Deed Sale for $15,185
Lots in this Ginn community sold originally for $329.9 thousand to $529.9 thousand.
By Toby Tobin

Palm Coast, FL – October 21, 2009 – In its 2005 sales launch, real estate developer Ginn-LA (Bobby Ginn and his financial partner Lubert Adler) sold 337 lots in The Conservatory at Hammock Beach for a total of about $142 million. Buyers anxiously anticipated news that they had been selected to purchase one (or more) lots in a golfing community that was being developed surrounding a Tom Watson signature golf course. Lot prices ranged from $329.9 thousand to $529.9 thousand. As it turns out, the lucky ones were those who were not selected. One lot purchased then for $425.9 thousand was sold yesterday at a Flagler County tax deed sale. The only bidder paid $15,185; the minimum bid to cover back taxes, interest, penalties, and fees.

Of four Conservatory lots originally scheduled to be sold on September 20, two were redeemed or withdrawn prior to the sale, a third was rescheduled for the November sale.

http://www.gotoby.com/news.php?id=831#null

Wow. What a shocker this is...

JFC

 

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#4) On October 22, 2009 at 1:09 PM, alstry (36.00) wrote:

JF....

I was touring that community last year, it is very upscale......if we keep on the same path, very few have any clue what is coming.

 

You see the Hughes trust is practically broke...that is what is different this time and about zombulation and concentric contraction...it primarily goes after those who were traditionally rich.

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#5) On October 22, 2009 at 1:22 PM, bigpeach (25.96) wrote:

Spend LESS!!! Pay down and RESTRUCTURE debt?!^ OMG now revenues are CRASHING!!!!! Quick, everyone, spend less and pay down debt, but INCREASE revenues!!! 

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