With a loss of more than $100 million recorded in fiscal year 2005 for Jim Walter Homes, the future should seem bleak. However, recent economic shifts and management changes at the top may provide just the boost the Tampa-based home builder needs to scramble out of its hole.
According to Walter Industries' financial statement, more than $60 million of the total loss was attributed to a re-accounting of intangible assets. The company says that much of the remaining loss is a result of having to unload inventory homes at deeply discounted prices.
Barbara Allen, a first vice president and senior research analyst for Nashville, Tenn.-based Avondale Partners, says that the builder's dismal performance is half self-inflicted and half a negative effect of the combination of several economic factors such as low interest rates, flexible mortgage underwriting, and escalating material pricing.
Because the scattered-lot builder maintained its mortgage business, it required home buyers to provide a minimum down payment in cash or land equity. This necessity made it difficult to win buyers away from aggressive mortgage programs such as the Federal Housing Administration's 100 percent loan-to-value financing. “That's very tough to compete against,” Allen explains.
But the company's biggest pitfall was that it didn't have proper quality and scheduling controls in place, Allen says. And in the Florida market where acute subcontractor shortages are common, that's a recipe for disaster.
And with a new captain taking the helm, she may be right. Mark O'Brien, a former Pulte CEO and current director at Walter Industries, agreed to serve as the building and financing group's chairman and CEO for a minimum three-year term.
Learn more about markets featured in this article: Tampa, FL.