Inside the Report Cards

After years of troubles and earnings that fell short of the public home builder pack, Beazer’s long-time CEO Ian McCarthy was replaced mid-year by Allan Merrill, its former CFO, who has worked to restructure the company’s debt over the past few years. Beazer still remains the second most heavily indebted builder by capitalization in the group. It managed to increase its home building income in 2011, but it still lost money.

D.R. Horton made money last year, a rarity in the public home builder group. It has a billion-plus in cash on hand and the second lowest debt in the bunch. Its gross margins are better than respectable, and it squeezes a lot of revenue out of every employee. The Texas-based company’s performance this year helped it outperform the vaunted NVR by a few points in our analysis.

The New Jersey–based builder has been struggling for years, but conditions continued to worsen in 2011, leaving it with the lowest score of the group in our analysis again. Debt, by far the highest of the 13 for its size, continued to be a huge drag on the company’s struggle to become profitable. Recently the company worked to resolve its liquidity issues by raising money in a stock sale it plans to use to pay down debt.

KB Home fell further on the list this year than any other builder. Its score was second lowest. Its cash shrank considerably, even as its debt remained high. Its gross margin also shrank, and its closings fell more than any other builder in the group. It’s possible that this year conditions will improve for the California-based builder since it has increased its community count and its backlog at year-end was up considerably.

Lennar took its place as head of the class on the 2011 Report Card, climbing up from the No. 2 spot in 2010. Like the other two builders at the top of the chart, Lennar made money last year. It also managed to shrink its overhead and offer shareholders returns. A relatively low debt-to- capital ratio helped Lennar keep costs low even as closings were nearly flat. Its entrepreneurial distressed asset arm Rialto also helped contribute to the company’s earnings.

M.D.C. worked to better balance its cash and debt in 2011 by using a chunk of its considerable cash holdings to pay down debt. That should give the company a better chance to return to profitability in 2012. But for 2011, business for M.D.C. was far from par as it worked to change business strategies to survive in the new market even as closings continued to slow along with revenue.

Meritage went from a profitable 2010 to a slight loss in 2011. The builder back-slid in a number of places. It spent more of its cash and it logged some more impairments to land, causing a hit to profitability. That said, the Arizona-based company knows how to squeeze a lot of productivity out of its employees. Meritage’s stock also gave its shareholders a return on their investments.

Paper losses hurt M/I Homes’ final numbers in 2011. It would have been profitable in its fourth quarter if not for impairments, which were up 105% for the year. Gross margins also suffered, and revenue fell by more than a third. The company’s debt is at a manageable level, but its cash was relatively low after dropping nearly 18%.

It was the first year that anybody can remember NVR turning in a less-than-perfect performance. Two other builders in the group outscored it. Still, there were only hiccups in the company’s operations. With almost no debt, no hits to its land value, and a year that continued to be profitable, NVR remained strong, though its cash took a bit of a hit in 2011.

PulteGroup wins the “Most Improved” award this year for pulling itself up from a C to a B. Done with digesting Centex, the company moved forward with staff reductions that showed up in the company’s SG&A-to-total revenue numbers and margins. Alas, it still lost money at the end of the year, but a lot less than 2010.

Ryland improved in the 2011 rankings, moving itself up from a C to a B-. The company stanched a good amount of red ink, though it still turned in an unprofitable year. It cut overhead costs and boosted its margins significantly. Its debt level, however, rose a bit, though it’s still in the middle of the pack.

Standard Pacific narrowly missed turning in a profitable year in 2011, as it did in 2010. Its cash dropped significantly as it executed its plan to invest in more land, particularly in California, but also in Florida. The company held off on opening some new communities while it redesigned its homes to fit the new market demand.

Toll Brothers was one of four builders that actually turned in a profit for 2010, albeit a small one. Its overhead remains among the highest in the group, and its gross margins among the narrowest. Still, the company is unique because of its focus on high-end housing. Like Lennar, it has diversfied its business into distressed assets through its Gilbraltar division.

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