Homebuilder Beazer Homes USA Inc. (BZH) reported Tuesday a profit for the fourth quarter compared to a loss last year, reflecting higher margins and a gain on early extinguishment of debt, despite a sharp decline in quarterly revenues. The company also reported a lower cancellation rate of 34.7% during the fourth quarter, compared to 46.3% in the same period of the prior year.
The housing sector is one of the worst-affected by the subprime collapse and the credit crunch. With unemployment levels remaining high and loans becoming hard to come by, house purchases were fewer. However, declining home prices, historically low interest rates and government stimulus programs, such as the $8,000 federal tax credit and the $10,000 California state tax credit created unique purchasing opportunities and made it more compelling for homebuyers to enter the market.
The federal tax credit of up to $8,000 for first-time homebuyers was scheduled to end on December 1, 2009, but the federal government has extended it last week to run through July 1, 2010, and expanded the scheme to include people with higher incomes and some who want to trade up into new homes. Homebuilders were pressuring lawmakers to extend the deadline, as it has supported home sales.
A report released by the National Association of Realtors, or NAR, on October 23, showed that existing home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months. The report showed that existing home sales jumped 9.4% to a seasonally adjusted annual rate of 5.57 million units in September from a 5.09 million unit rate in August, and are 9.2% higher than the 5.10 million-unit pace in September 2008. Sales activity is at the highest level in over two years, since it hit 5.73 million in July 2007, according to NAR.
However, an October 28 report by the National Association of Home Builders, or NAHB, showed that after five consecutive months of increases, sales of newly built, single-family homes fell 3.6% to a seasonally adjusted annual rate of 402,000 units in September, according to data released by the U.S. Commerce Department.
Commenting on the decline, NAHB Chairman Joe Robson said, "This critical loss of momentum corresponds with the ending of the $8,000 first-time home buyer tax credit, since for the most part, September was too late to sign a deal that could be completed by the time the credit expires at the end of November. The fact that sales are now heading downward just shows how important the tax credit has been for stimulating buyer demand up to this point."
Fourth Quarter Results
The Atlanta, Georgia-based designer, builder and seller of single-family and multi-family homes reported net income of $33.79 million or $0.84 per share for the fourth quarter, compared to a net loss of $473.94 million or $12.29 per share in the prior-year quarter.
Income from continuing operations for the quarter was $35.30 million or $0.87 per share, compared to loss of $453.84 million or $11.77 per share in the year-ago quarter. On average, six analysts polled by Thomson Reuters expected the company to incur a loss of $1.24 per share for the fourth quarter. Analysts' estimates typically exclude special items.
The results for the latest quarter include non-cash pre-tax charges of $29.9 million related to inventory impairments and abandonment of land option contracts, and a pre-tax gain of $89.3 million on early extinguishment of debt.
Total revenues for the quarter dropped to $376.35 million from $649.80 million in the same quarter last year. Five Wall Street analysts had a consensus revenue estimate of $338.29 million for the quarter.
Peer Performance
Among Beazer Homes' peers, Miami, Florida-based Lennar Corp. (LEN, LEN.B) in September reported a wider loss for the third quarter, hurt by write-downs and charges as well as a sharp decline in revenues, reflecting a decrease in the number of home deliveries and average selling price. Net loss widened to $171.61 million or $0.97 per share from $88.96 million or $0.56 per share a year ago. Total quarterly revenues declined to $720.73 million from $1.11 billion in the prior-year quarter.
Also in September, another peer Los Angeles, California-based KB Home (KBH) reported a narrower loss for the third quarter of $66.05 million or $0.87 per share from $144.75 million or $1.87 per share last year, helped by lower expenses and cancellation rate as well as an increase in net orders. Revenues, however, dropped to $458.45 million from $681.61 million a year ago, due to a drop in houses delivered and average selling price.
Other Metrics
Revenues from Homebuilding operations dropped 30.8% to $373.67 million from $539.84 million in the comparable quarter a year ago, and land and lots sales revenues were $2.02 million, sharply lower than $108.70 million in the prior-year quarter.
Home closings for the quarter dropped 24.3% to 1,685 from the same quarter last year, with a 8.6% decline in average selling price from last year. Net new home orders totaled 1,012, up 2.4% from the year-ago quarter, driven largely a 35.5% increase in new orders in the East segment.
The company also reported a lower cancellation rate of 34.7% during the fourth quarter, compared to 46.3% in the same period of the prior year. At the end of the fourth quarter, total backlog units were 1,193 homes with a dollar value of $280.77 million, lower than 1,318 homes with a dollar value of $318.45 million at the end of the year-ago quarter.
Operating loss for the third quarter sharply narrowed to $39.16 million from $102.38 million in the prior-year quarter, while selling, general and administrative expenses were $58.27 million, down from $89.23 million in the year-ago quarter. The latest quarter includes a gain on early extinguishment of debt totaling $89.29 million.
Gross profit for the quarter was $24.91 million, compared to gross loss of $4.54 million in the same quarter last year, while gross profit margin was 6.6% compared to -0.7% last year. Excluding impairments and abandonments, gross profit margin climbed to 14.6% from last year's 7.1%.
The company recorded an income tax benefit of $1.17 million, compared to a tax provision of $334.94 million in the same quarter last year.
The company ended the fourth quarter with cash and cash equivalents of $556.8 million, compared to $584.3 million at end of the prior-year quarter.
In a statement, president and chief executive officer, Ian McCarthy said, "Following difficult market conditions throughout fiscal 2009, we were pleased to finish the year with a fourth quarter year-over-year increase in net new home orders from continuing operations, improved gross margins and a significant cash balance. During the quarter, we experienced some moderation in negative market trends, with attractive interest rates, historically high housing affordability and the federal tax credit attracting more prospective buyers to purchase a new home."
Fiscal 2009 Highlights
For the full year, Beazer Homes reported a net loss of $189.38 million or $4.90 per share, sharply narrower than $951.91 million or $24.69 per share posted in fiscal 2008.
Loss from continuing operations sharply narrowed to $178.02 million or $4.60 per share from $800.77 million or $20.77 per share reported last year. Analysts expected the company to report a loss of $6.89 per share for the full-year 2009.
Total revenues for the full-year 2009 dropped to $1.01 billion from $1.81 billion reported in the full-year 2008. The Street was looking for revenues of $983.60 million for fiscal 2009.
Looking ahead…….
"Nonetheless, elevated unemployment and rising foreclosure activity make it difficult to predict when and to what extent the housing market will sustainably recover. In light of the difficult market conditions, we will maintain a disciplined operating approach, focused on gradually improving profitability and protecting our liquidity," McCarthy added.
Stock Quote
BZH, which was trading in a broad range of $0.24 to $6.93 in the past 52 weeks, settled its trading on Monday at $4.69, up $0.01 on a volume of 2.34 million shares, lower than the three-month average volume of 2.65 million shares.
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