There are disasters in the making at WCI. Let's takes a look. On February...

There are disasters in the making at WCI. Let's takes a look. On February 27th WCI reported wider-than-expected quarterly loss. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? WCI Communities Inc. a Florida upscale home and condominium builder that may put itself up for sale, on Tuesday reported a wider-than-expected quarterly net loss, amid the weak U. S. housing market. The company posted a quarterly net loss of $64.6 million, or $1.52 per share, versus a profit of $54.6 million, or $1.20 per share, in the year-earlier quarter. Excluding the impact of $118.3 million for the write-off for deteriorating values of its land holdings and residential towers, WCI's income was $6.6 million or 18 cents per share. Fourth-quarter revenue fell 37.6 percent to $526.3 million, the result of lower sales, higher cancellations of both homes and condominiums, the Bonita Springs, Florida company said. Gross margins as a percentage of revenue were negative during the quarter, WCI said, a result of write-offs and greater sales cuts. Earlier this month, WCI said it hired Goldman Sachs & Co. to explore strategic options, which included a possible sale, selling some assets or repurchasing stock. The move was viewed as a response to pressure from investors such as Carl Icahn, Hotchkiss & Wiley Capital Management and SAC Capital Advisors. WCI last month adopted a shareholder rights plan, commonly known as a 'poison pill' after investor Carl Icahn said he had boosted his stake in the company to 14.6 percent. Meanwhile, billionaire investor Icahn said he and nine others will seek seats on the WCI board. WCI said Icahn's hand-picked slate would further his personal objectives and would be highly disruptive to the company. No one in their right mind would want to but this company. Of course that does not exclude it from happening as insane leveraged buyouts of all sorts have been happening recently. However, I suspect the widening of credit spreads and recent global stock market action will put an end to such absurdities sooner rather than later. The threat of repurchasing stock is a bluff. WCI has a serious cash flow problem and wasting money repurchasing stock would compound it. Feb 27 WCI Communities Inc. a builder of upscale homes and high-rise apartment buildings, chiefly in Florida, withdrew its 2007 earnings forecast on Tuesday, citing difficulty in forecasting regional housing demand. 'Because of the lack of visibility on demand, cancellations that we've experienced... we're withdrawing the guidance that we provided previously and believe that the most important metrics for WCI to focus on during 2007 is cash flow and debt reduction,' Jerry Starkey, president and chief executive, said during a conference call with analysts. WCI wants to generate $1 billion in cash flow from operations this year. Last year they burned $490 million, and they burned smaller amounts in 2004 and 2005, so that would be quite a turn around. Indeed, for many years builders were content to pile up inventory of land and homes for sale, along with mountatins of debt. They didn't care about cash from operations when there was plenty of cash from financing to be had. My take is that the financing is drying up. If builders can't raise cash from operations while the losses are mounting, then they'll have an especially hard time getting lenders to extend their credit agreements. With today's write-offs, WCI is already in violation of their credit covenants. DHOM violated theirs last year and had to renegotiate at significantly higher interest rates. OHB is also on a mission to generate cash from operations. 'Our principle business focus in 2007 is on maximizing cash flow, reducing debt, and improving our financial flexibility. We expect to generate approximately $1 billion of cash flow from operations during 2007. While all aspects of our business will contribute to this cash flow objective, completing and closing nine towers during the year is the primary driver. We expect around $1 billion in collections from the closing of those nine towers and from the closing of the remaining sold units from three towers that were completed in December 2006.' WCI has not made its numbers for a year, the economy is headed into a recession, they have negative new orders for their latest quarter, and demand for condos is in the gutter. In addition they have ' The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. 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