Phoenix Division Will Not Help Centex

Implications: Centex Corporation's Phoenix division has struggled for years and will likely continue to struggle.  Don't depend on the builder's Phoenix division to boost overall earnings for the company. 

Analysis: Centex Corporation's Phoenix division has struggled for years, and will likely continue to struggle in coming years.  It missed its opportunity to benefit from a strong market in 2002, 2003, and 2004, aggressively purchased land in 2005, and is now grappling with a falling market and a lack of identity.

Prior to 2004, Centex struggled with land acquisitions in the Phoenix market.  Its product consisted primarily of outdated floorplans designed to target entry-level buyers.  Its land acquisition efforts were weak.  As most of the publicly traded builders ramped up their Phoenix operations, Centex remained on the sidelines.

In 2004, Centex anointed a new division president.  According to those familiar with the company's goals, Centex planned to aggressively purchase land and tweak its product to make it more appealing to a diverse group of buyers.  The builder was playing "catchup" after recognizing the market as one of the better short and long-term U.S. housing markets.

Centex's late market actions likely mean it currently sits on a significant amount of overpriced land.  In the early and middle parts of 2005, builders had to pay top dollar to land attractive land positions.  Centex was no exception, especially since its market presence was limited.  Brokers and developers prefer working with builders they've worked with in the past, and builders with proven product.

Changes in Centex's product are not apparent today.  And, local advertisements reflect Centex is likely struggling.  Its incentives are among the most aggressive in the marketplace and it has been offering the most aggressive co-brokerage fees- up to 12% in some cases.  Don't depend on Centex's Phoenix division to boost the overall company's direction.