Beazer Shares Rise as Loss Shrinks, Revenue Beats

Beazer Homes posted a smaller quarterly loss on higher-than-expected revenue Friday despite the housing slump and a federal investigation of its accounting practices. Its shares rose nearly 9 percent.

Beazer Home
Beazer Home

The loss for the third quarter ended on June 30 narrowed to $109.8 million, or $2.85 per share, from $118.7 million, or $3.09 per share, a year earlier.

Still, it beat expectations: Analysts had been expecting a loss of $2.66 per share, according to Reuters Estimates.

Revenue fell 40 percent to $455.6 million but nonetheless beat the analysts' average forecast of $419.5 million.

A small-cap builder operating in 21 states, Atlanta-based Beazer also managed to increase cash and cash equivalents to $314.2 million on June 30, up from $273.7 million on March 31.

"The standard playbook right now is, sell the houses you can for whatever prices you can, and reap the cash that's in the ground," said Morningstar analyst Eric Landry.

On Thursday, the National Association of Realtors said U.S. home-sales contracts signed in June were down 12.3 percent from a year earlier, although they rose from May, contrary to economists' expectations.

Beazer sold 1,677 homes in the quarter, 37 percent fewer than a year earlier, while the average sale price was down 8.8 percent at $257,400.

"Potential homebuyers remain reluctant due to eroding consumer confidence amid concerns about employment growth, higher energy costs and the overall economy," said Chief Executive Ian McCarthy.

With foreclosures rising and home prices falling, the housing slump has helped push some builders into bankruptcy, including WCI Communities Inc on Monday.

The survivors have had to mark down the value of their inventories and take charges for walking away from land deals -- Beazer's results included $118.4 million of such charges.

The deteriorating market has also forced builders to ramp up incentives at the expense of profitability, sell land purchased at boom-time peak prices and negotiate loosened agreements with creditors. Beazer slashed its land supply 36 percent from a year earlier to 46,224 lots.

And on Thursday, the company amended its revolving-credit facility so that it is now required to have tangible net worth — shareholders' equity minus intangible assets — of only $100 million, down from a previous requirement of $900 million.

The new credit agreement reduces the amount of money available by $100 million, to $400 million, while interest costs are higher.

The changes to the facility are ominous, Gimme Credit analyst Vicki Bryan said, as they reduce the banks' exposure to Beazer, indicating a lack of confidence in the company's prospects.

That the banks believe the company's tangible net worth might fall that far is alarming, she added.

Beazer last year restated financial reports for fiscal years 2003 through 2006 and had to make adjustments going back to 1999. Fiscal 2007 reports were delayed because of accounting irregularities that the company discovered while investigating its mortgage lending practices.

A federal prosecutor in North Carolina and the Securities and Exchange Commission are investigating Beazer.

"The investigations are also unhelpful, hurting their operations by tarnishing their brand," Morningstar's Landry said.

Shares of Beazer Homes gained more than 8 percent in early trading.