Beazer's Bulls Could Meet Wrecking Ball-Minyanville

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Beazer's Bulls Could Meet Wrecking Ball

Glenn Curtis Aug 11, 2008 9:10 am


		Second-quarter numbers not as strong as they seem.

Although some may argue that the real estate market’s nearing bottom, or that now might be the time to broadly bottom-feed for homebuilding stocks, I certainly saw little evidence of that in Beazer Homes’ (BZH) third quarter earnings results. Yet shares of the beleaguered Georgia-based homebuilder still rose almost 3% in Friday’s trading.

The reason some investors were celebrating: The company’s revenue number, which came in at $455.6 million. (Analysts had reportedly been expecting $419.5 million.)

I suppose some could make the case that a narrower bottom line loss in the period was also cause for celebration. Beazer posted a loss of $109.8 million, or $2.85 a share, which was noticeably less than the $118.7 million or $3.09 a share loss it reported in the comparable period last year.

But I wasn’t impressed by Beazer’s numbers - and I think those who drove up the shares on Friday were missing something.

First, although its revenue number was apparently north of expectations, it was still down about 40% or so from the roughly $753.5 million in revenue it booked in the same period last year. Moreover, as per the release, its backlog stood at “2,716 homes with a sales value of $668.1 million compared to 5,952 homes with a sales value of $1.69 billion as of June 30, 2007.”

That doesn’t exactly leave me with the impression that revenue is about to ramp up anytime soon. And Lennar (LEN), which operates in some of the same markets as Beazer, is coming off a pretty lousy second quarter. The comments of Lennar’s management suggest that I should probably keep any expectations I have for Beazer to a minimum.

Next, I noticed that its average sales price in the quarter was $257,400 - down almost 8.8% from the $282,100 it saw in the same period last year. This suggests to me that the company is having a tough time moving the homes it has right now and/or that the markets it does operate in remain quite competitive.

CEO Ian J. McCarthy also said, “Despite lower home prices, relatively low interest rates and a large choice of available homes, potential homebuyers remain reluctant due to eroding consumer confidence amid concerns about employment growth, higher energy costs and the overall economy... [Coupled] with high supply levels of new and existing home inventory, we believe industry conditions will remain challenging for the remainder of this fiscal year and as we enter fiscal 2009.” According to the company’s own CEO, a big-time near term comeback probably isn’t in the cards.

For what it’s worth, Beazer bulls will probably point out that “the company also said it expects to generate positive cash flow in its fiscal fourth quarter."

Of course, that’d be good news. But would it continue to generate positive cash flow beyond that? Will industry conditions pick up? The answers to those questions remain uncertain - but my gut tells me that the stock should probably be avoided, at least for now.

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Beazer closed at $6.10, up $0.17 or 2.87%.


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Comments (3)

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Donald Morris

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08-11-2008, 9:54 am
Hold on. In terms of average cost per house sold, could changes in the product offering be a driving force here? Also, backlog is not a GAAP derrived. While important, my guess is that part of the erosion of backlog is due to more strict internal Read More

Dean Simmons

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08-11-2008, 11:03 am
The average house in the backlog was valued at ~$284k a year ago. Now they value it at ~$246k. I'm guessing they didn't sell disproportionately higher priced houses, but, rather, have been forced to reset prices downward by about 15%, rou Read More


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