British housebuilder George Wimpey took the shine off an otherwise strong performance in the UK today by warning that it faced “very poor” conditions in the United States.
The housebuilder said US cancellation rates averaged 50% in the second half of this year, with the forward order book worth 68% less than last year.
Amid brighter conditions in the UK, Wimpey said group pre-tax profits were still likely be in line with expectations, before an estimated £40m (€59.6m) hit on lower land values in the US.
Wimpey, which operates as Morrison Homes in states including Texas and Florida, said it was difficult to predict the outcome for Morrison in 2007, but said volumes and margins were likely to be “materially below” this year.
As a result of the slowdown in the US market, Wimpey has pulled back from purchasing land in all markets except Texas, while it has renegotiated or exited those contracts not expected to deliver economic returns.
It expects that it will have reduced land bank plots by more than 20% to less than 19,000 at end of this year.
Wimpey said: “Current trading conditions remain very poor, however we are encouraged by the fact that housing stock levels have now stabilised.”
The picture was much brighter in the UK, with prices increasing in most markets and margins for the second half of its financial year ahead of both the first half and the same period a year earlier.
It added that its UK order book for 2007 stood at £763m (€1.1m), which is a 10% increase by volume and 11% by value on the same period last year.
The strong trading conditions should mean Wimpey will achieve a record number of total completions in 2006 – in excess of the 17,021 seen in 2005 and despite a 12% fall in the United States.
Around 75% of the company’s completions in the year will be in the UK, which compares with a figure of 71% a year earlier.
Tessa Guy, an analyst at Investec Securities, said the company’s guidance meant she would raise her full-year profits forecast to £355.4 million from £350 million. This is before the charge on land values in the United States.
She added: “The US remains the key drag and there is a danger that the market is too willing to look beyond the weakness in the short term.”
Shares were 2% lower following the update today.