Citing extremely challenging market conditions exacerbated by disruptions in the credit and mortgage markets, Centex Homes discussed the company's quarterly loss in a conference call this morning after releasing financial results for the company's second quarter of fiscal year 2008.

The net loss in the three months ending Sept. 30 was $643.8 million, or $5.26 per share, compared with net income of $137.4 million, or $1.11 per share, a year earlier, Fiscal second quarter revenue fell 21% to $2.2 billion. Centex recorded $983 million in land write downs and charges and said its cancellation rate was 35%.

Other pre-released notables for the quarter include: closings down 14% compared to a year ago, sales down 13% compared to a year ago, and backlog down 38% compared to a year ago.

Though Centex generated positive cash flow from operations during the quarter, cash flow was weak with cash falling to $100 million vs. $233.2 million last quarter despite a 28% year-over-year (YOY) decline in spec units. In addition, Centex projects consolidated cash flow of approximately $500 million for fiscal 2008, down from previous estimates of $750 million. According to CFO Cathy Smith, the major delta driving that decrease is continued price erosion.

The company strives to achieve three sales per month in every neighborhood, Smith said, adding, "Once we find that level, we can set a cost structure. Currently, about half of our neighborhoods are achieving the sales pace of three homes per month."

CEO Tim Eller said the company's incentives and discounts average 11%, but depending on the community they range "all over the board. If you can reset to affordability level, you reduce the incentives. Where we have reduced prices, we are pre-selling homes When we price right, we are able to generate a backlog. I see us moving more toward a presell model. It syncs up nicely with the disciplines we are in the process of implementing. We are progressing toward applying world-class manufacturing disciplines to our home building operation. We continue to be operationally profitable during this trough in the cycle. To remain profitable, we continue to adjust our cost structure."

Case in point:

- The company is actively reducing its land position. YOY, the number of lots owned is down 16% to 92,000 lots, and optioned lots are down 70% to 32,000.

- Centex reported a 37% reduction in unsold finished homes and reduced its number of completed homes by 50%. In total, specs were only down 2% for the quarter. But according to Smith, "In this environment, it's the age of the specs that is most critical."

- The company's workforce has been reduced by 40% from its peak and by 20% in the last six months. At quarter's end, the number of employees in home building operations stood near 5,000 in contrast to the peak of 8,500 in 4Q2006.

- Brick and mortar costs have come down by approximately 10%.

"Our actions today will further our long-term vision as we structure to gain strength and share in the markets that fit with our business model," Eller said. "We will emerge from the cycle with a sustainable lower cost structure. We are seeing some results today, but more sustainable cost reduction efforts will be seen toward the end of '08 and into '09."