Earlier this week Beazer Homes reported financial results for its most recent quarter, rounding out the group of public builders with June-ending quarters. While the company's loss widened compared with a year ago, due largely to closings shrinking by half, executives appeared hopeful the company is in a position to begin to make up for some lost ground in the year ahead. Company president and CEO Allan Merrill said, "Whatever the expectations were for starts, we're going to do better than that."
Buoying some of the optimism was the company's 20% leap in orders, which outpaced peers and helped drive backlog up 57%. This type of order growth is reflective of management's focus on an articulated two-prong strategy to drive revenue, which will help leverage the company's overhead, balance its debt load to an extent, and move the company toward profitability.
The first part of the strategy involves driving higher volumes on the individual community level. The company is selling at a rate of roughly 1.5 sales per month per community, a pace Merrill said was "not good enough for us." "We need to get into the twos in the next 18 months," he said.
As part of the plan to execute on that goal, Merrill said the company is looking to leverage the so-called "four Ps" of real estate: product, placement, promotion, and price. Merrill said in the company's quest for efficiency, some of its product was coming up short next to buyers' expectations. So while management will keep tight controls over its library of floor plans, it's going to start tweaking product features.
"We've got to find a way to give people what they want and what they'll pay for," Merrill said.
The second part of the revenue growth plan centers on accelerating the company's recently launched pre-owned rental homes division. While management had originally expected to invest as much as $10 million in what was going to be an in-house operation, the team expects there could be more upside to the venture than at first blush. Consequently, management announced it is planning to scale the operation by moving it off balance sheet into a joint venture with a yet-to-be-named third-party capital source and had earmarked as much as $20 million for investment in the entity. At quarter end, the company had purchased roughly 100 existing homes in Phoenix and Las Vegas with the intent to rehab them and rent them out.
While the company's margins are still lagging those of peers and its debt load still crushing, Merrill stressed that management's two-part revenue growth plan is aimed to begin to attack some of those major balance sheet issues. "We're not going to throw a Hail Mary and hope it works out," he said.