IN TODAY'S POST-HOUSING CRASH WORLD, a family's biggest purchase—a home—no longer necessarily equates to it being the best investment. Against the backdrop of this sad truth, the business of selling new homes has become increasingly more focused on the economics of homeownership than just the traditional emotional drivers pushing families toward it. Home builders have to deliver product with such value that it outweighs consumers' trepidation.
Today's market finds a number of public home builders under pressure to spend some of the large amount of cash they've been sitting on as the downturn has drawn out. Their cash hoards are much larger than their shrunken operations necessitate, a fact that's coming out in the interest charges many are racking up quarter after quarter. The options are somewhat limited: repurchase shares, pay down debt, or buy more land.
The industry has reached a point in this down cycle where surviving it means more than just cutting costs and preserving cash. Home builder executives, even those whose companies are marginally profitable, have to figure out how to reinvest in their companies to improve and maintain profitability if current market conditions are the new normal. For Toll Brothers executives, getting to an answer as to where to begin to park some of the $1.18 billion in cash and marketable securities the company has sitting on its balance sheet is really about seizing opportunities rather than planning for them. "We continue to be opportunistic on all fronts," said CEO Doug Yearley during an earnings call earlier this week. "We don't plan our allocations."
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."
In an effort to course-correct, the company is doing an about-face on spec strategy.
