2012 Public Builder Report Card

Beazer sold more homes per community than any other public builder, even though its community count dropped by 40 percent. The Atlanta-based builder also did an admirable job cutting costs. Still, it was one of only three on our list to lose money in 2012, and it has one of the highest debt ratios in the group. Despite the headwinds, Beazer managed to restructure its finances to bank 45 percent more cash than it had at the end of 2011—money it might be able to use to raise its community count in 2013.

D.R. Horton had a great 2012 and started 2013 wth a 61.5 percent increase in backlog orders. Still, it fell slightly in the rankings from No. 1 to No. 4 because its closings grew more slowly than its competition and because its cash fell 36 percent at a time when it needs capital to buy land. Perhaps the builder made a big cash-draining push for land because it reported its community count grew by 9 percent in the fourth quarter.

Hovnanian is still near the bottom of the 13 publics (it is one of only three that lost money last year), but it improved operations in 2012. Its 18.1 percent gross margin tied with Horton and was eclipsed only by Lennar, Ryland, Standard Pacific, and Toll. Still, its 145 percent debt-to-capital ratio—the heaviest of any builder in the group—continues to challenge the company, but it grew its cash pile by more than 40 percent last year.

KB Home has fallen more than any other builder we’ve been following since 2005. It received a B- that year and is one of only two companies to earn a D in 2012. It hasn’t made a yearly profit since 2006, carries high debt, and its community count fell at a time when it should be climbing. KB’s gross margins were the second worst in the group, as was its increase in pre-tax home building income. However, the company did increase its cash count by more than 25 percent.

Lennar continued to prove that it’s probably the most financially savvy public builder. It lowered its debt, grew its home building income, cut its costs, raised its cash to more than $1.1 billion, and sold homes at a blistering pace of 2.9 per community per month. Its 86.7 percent backlog increase was only bettered by Standard Pacific Homes. Lennar lost money for three of the past eight years; only NVR and Toll Brothers have logged fewer years of losses.

M.D.C.’s metrics for the year landed close to the center of the crowd. There were, however, a few things M.D.C. did very well. Its debt was within reasonable boundaries and it controlled its sales, general, and administrative costs. In addition, M.D.C.’s sales and marketing department is flourishing. The company, which needed to sell 1.75 homes a month to break even, ended up selling 2.4 homes per month. And its percentage increase in closings was beat only by Ryland.

Meritage’s results reveal it made lots of progress during the past few years, but it’s not yet an A player. The company’s operations and sales are firing on all cylinders, averaging 2.5 sales per community each month—well more than the 1.68 it needs. Signs point to a strong first half of 2013 with unit backlog up nearly 60 percent. Meritage’s bugaboo appears to be land. Its community count barely made traction in 2012, and it wrote down land that fell in value.

M/I Homes made money for the first time since 2006, despite having the highest increase in home building sales, general, and administrative expenses in the group. It also increased its communities by 7.4 percent, the fourth best among the publics on our list. Still, M/I had to write down $3 million of its land as the market improved.

NVR is always hard to grade. How can you find fault with the only public builder that made a profit every year during the recession? That said, NVR did have a few dings to its scores. Notably, its pretax home building income was on the low end for the group, as was its backlog expansion and percentage increase in closings. However, some of NVR’s statistics didn’t rise much because many didn’t fall as far during the recession.

PulteGroup did a number of things well in 2012. Perhaps the most notable was a 2,288 percent increase in its pre-tax home building earnings and a $1.4 billion war chest. Nevertheless, its scores took some hits because of a 4.3 percent decrease in community count and a low 8 percent increase in closings. The company’s backlog of homes was up 64.6 percent, trailing behind only Standard Pacific and Lennar. Closings for the first half of 2013 should be strong.

Ryland Group has shot up our list from No. 8 in 2005 to No. 2 in 2012. One reason is that it increased its percentage of new communities by 12.8 percent, more than any other builder. Closings were also the best in group at 40.9 percent, and Ryland made good margins selling the homes. Only Standard Pacific and Toll managed to net higher home building gross margins. However, Ryland’s 73.6 debt-to-capital ratio is high for the group, and its expenses grew.

Standard Pacific climbed from No. 6 with a C in 2005 to No. 3 in 2012 with an A. It excelled in operations, garnering a nearly perfect score with home building gross margins and pre-tax home building income. Standard Pacific needs to sell only 1.26 homes a month per community to break even, and it sold 2.2. Deliveries in the first part of 2013 are expected to be strong since the company ended the year with the biggest jump in sales backlog.

Toll is another home builder with strong financial savy and a business model that varies from the rest of the group. The company’s uber high-end homes loaded with profit-plumping options deliver some of the highest margins in the industry. It’s worth noting that Toll needs to sell only one home per community per month to break even. The company had the third greatest percentage increase in closings, and its backog increased more than 50 percent, hinting at a strong early 2013.

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