Embattled Beazer Homes USA, Inc. slashes costs
During a midday conference call, Beazer Homes USA, Inc. (NYSE: BZH) CEO Ian McCarthy said an oversupply of homes, aggressive price competition from builders and reduced customer demand for new homes will continue to challenge the company. The Atlanta-based company is cutting costs to offset the difficult business environment.
Although the company no longer provides earnings guidance, Beazer expects to have a cash balance that exceeds $300 million at the end of the year, CFO Alan Merrill said.
McCarthy said the company is clearing unsold inventory through a national marketing campaign. For the third quarter ended June 30, Beazer slashed home construction and land sales expenses to $0.65 million, from $0.88 million in the year-ago period. The company also cut its per-home cost. Next year, Beazer expects to benefit from $50 million in cost savings, Merrill said.
Meanwhile, Beazer’s legal troubles continue to mount. In March, Beazer announced that it received a subpoena from the United States Attorney’s office in North Carolina, seeking the company’s documents relating to mortgage origination. On May 1, the SEC launched an informal inquiry to determine if Beazer had violated federal securities laws. On July 20, the company received a formal order of private investigation from the SEC. In addition, McCarthy said the company has been named a defendant in several class action lawsuits.
In response to the legal allegations, Beazer’s audit committee launched an internal review of the company’s mortgage origination business.
“Management is fully cooperating with this investigation,” McCarthy said. “The company cannot predict the ultimate outcome of these matters.”
The results of the investigation could result in criminal or civil fines, an adjustment of business operations or other penalties. On advice of counsel, McCarthy would not divulge any further information to investors, but said the company will not engage in stock or bond buybacks while the investigation is ongoing.
Before the opening bell, Beazer announced a net loss of $123 million, or $3.20 per share, on $761 million in revenue for the third quarter ended June 30. In the same period of 2006, Beazer recorded a profit of $102.6 million, or $2.37 per share, on $1.2 billion in revenue.
Wall Street analysts were expecting a loss of $0.46 per share on $864 million in revenue.
“Our results for the third quarter clearly reflect that operating conditions in the housing industry declined further and remain very challenging,” McCarthy said.
During the third quarter, 2,666 of Beazer’s homes were foreclosed, compared with 4,156 a year earlier. The company received 3,055 new home orders during the same three months, compared with 4,378 a year before.
As of June 30, the company had 5,952 homes in its backlog with a sales value of $1.69 billion, compared with 9,449 homes with a value of $2.89 billion during third quarter 2006.
Also before the start of trading, Beazer announced that it has entered into a new $500 million revolving credit facility, which matures in July 2011. The new facility replaces the company’s existing $1 billion revolving credit facility.
In an attempt to more precisely identify potential customers, Beazer is taking a review of the markets it is involved with, McCarthy said. The company will use the results of this analysis to make future investment decisions, he said.
“The current housing market continues to be characterized by lower demand and higher inventories with heavy discounting needed to drive meaningful sales volume,” he said. “During this period, the company will focus on balance sheet strength, reducing costs and a disciplined investment strategy to manage through these difficult market conditions and be positioned to take advantage of opportunities that will arise when conditions stabilize.”
During midday trading, Beazer shares are trading at a year low of $15.09, down $1.95, or 11.44%. Over the last 52 weeks, shares have ranged between $15.21 and $48.60.
