Like many of its fellow production home builders, Beazer Homes USA managed to narrow its losses for its most recent quarter. But, also like its competitors, it suffered from an abysmal drop in sales.
The Atlanta-based company only netted 545 orders for its fiscal 1Q2009, down 56.6% from 1,252 in the same quarter last year.
It wasn't anything Beazer executives didn't expect. In fact, they seemed to embrace the inevitability by holding the line on incentives and price decreases. The rationale was that such tactics wouldn't help much in the face of overwhelmingly bad market conditions coupled with a traditionally slow time of the year for home sales and would hurt the bottom line.
"What we didn't do was try to chase 100 or 200 or 300 more sales," said Allan Merrill, the company's CFO.
That might change in the next quarter as the company revs up for the spring selling season with some sales initiatives. Of course, executives warned, more sales at lower prices can carry a cost of their own: more impairments.
The company should have plenty of products to market during the spring selling season. It had 503 unsold but finished houses on Dec. 31, a decline of 26% from the same time a year ago. In response to analysts who questioned the number of homes Beazer has under construction or finished without buyers attached, Merrill said he is comfortable with the numbers. At the end of the company's fiscal year on Sept. 30, "We were at real risk at being at a disadvantage ... of not having homes to sell [during the upcoming spring selling season]," he said.
Now the company has about 1,100 homes under construction, a number equal to two or three per community. "We are very comfortable with that level," Merrill said.
CEO Ian McCarthy chimed in, "With a cancellation rate in the mid-40s [percentage range], we are going to get some of those back."
Beazer ended the quarter with less cash than it had at the end of September--$436.9 million versus $584.3 million--but executives said it is normal for the company's first quarter, which is typically slow in sales and high in construction costs. And it was an improvement over the same quarter of the previous year when the company ended with only $236.5 million in its coffers.
Merrill said there's a possibility the company may even be able to generate more cash this year since most of its lots are fully developed, eliminating the costs of development at the same time the company curtails land buying.
Beazer is also continuing to cut costs by trimming construction costs through value engineering and garnering better prices from suppliers, as well as by cutting positions. The company's headcount was down 32% for the year and 70% from its peak numbers in early 2006, McCarthy said. Plus, another 300 employees were cut in January.
This year, the company is expecting to spend about $100 million less than the $333 million it spent in 2008 for land purchase and development.
Beazer did spend $20 million to buy land out of land banks at a reduced rate. "These are assets in many cases we have been working through for years, and we know them inside out. We know them better than anybody," Merrill said.