Beazer Homes USA, Inc., Atlanta (NYSE: BZH) late Thursday reported a net loss from continuing operations of $100.8 million, or $3.28 per share, for its fiscal second quarter ended March 31, 2019, compared to net income of $11.6 million, or $0.36 per share, in fiscal second quarter 2018. The loss included an Impairment charge on certain California assets of $147.6 million. Analysts were expecting a gain of $0.05 per share.
Excluding impairment charges and gain on debt extinguishment recognized during the quarter, net income from continuing operations was $6.2 million compared to $11.6 million in fiscal second quarter 2018. Second quarter Adjusted EBITDA of $32.6 million was down $6.9 million, or 17.6%, compared to the same period last year.
Of the total impairments during the quarter, $109.0 million related to 9 formerly land held for future development communities that are currently generating sales or are under development in Southern California and reflected the deterioration in conditions that occurred in their respective markets. Concurrently, the company performed a strategic review of its remaining land held for future development assets in California and now plans to sell all of these parcels. As a result, land held for sale impairment charges totaling $38.6 million were recognized on 6 of these communities. The company no longer has any land held for future development assets in California.
Second quarter home closings of 1,134 homes were down 10.4% from the same period last year. This was partially offset by a 6.5% increase in the average selling price to $371.2 thousand, leading to home building revenue of $420.9 million, down 4.6% from the prior year period.
Net new orders for the second quarter decreased 4.8% from the prior year period, to 1,598. The drop in net new orders was driven by a decrease in the absorption rate to 3.3 sales per community per month, down from 3.7 the previous year, but equal to the company’s average second quarter absorption rate over the previous five years. The cancellation rate for the quarter was 14.5%, down 40 basis points year-over-year and was the lowest recorded in the past five years in any quarter.
The dollar value of homes in backlog as of March 31, 2019 decreased 11.5% to $783.3 million, or 1,989 homes, which compared to $885.4 million, or 2,312 homes, at the same time last year. The average selling price of homes in backlog rose 2.8% year over year to $393.8 thousand.
Home building gross margin (excluding impairments, abandonments and amortized interest) was 19.8% for the second quarter, down 150 basis points from the same period in fiscal 2018. The reduction in gross margin reflected the company's efforts to respond to weak demand in the first quarter. Gross margin benefited from approximately 60 bps of construction reimbursements and other benefits that we do not expect to recur in the near term.
Selling, general and administrative expenses, as a percentage of total revenue, were 12.7% for the quarter, an improvement of 10 basis points compared to the prior year period.
At the close of the second quarter, the Company had approximately $221.4 million of available liquidity, including $86.4 million of unrestricted cash and $135.0 million available on its secured revolving credit facility after accounting for borrowings.
Earlier this fiscal year, the company announced its Board of Directors had authorized the repurchase of up to $50.0 million of common stock. As part of this program, the company repurchased $7.5 million of its common stock during the second quarter, bringing the total year-to-date repurchases to $24.0 million. Further, the company repurchased $5.1 million of debt during the second quarter. In line with its commitment to repurchase debt in excess of its share repurchases by the end of the current fiscal year, the company plans to retire at least $25.0 million or more in debt, plus additional amounts based on future share repurchases, during the second half of fiscal 2019.
Beazer continued the rollout of its Gatherings active-adult communities during the second quarter of fiscal 2019 as Dallas' Gatherings at Mercer Crossing began construction on its second building, with its first building scheduled to be completed in April. Subsequent to the end of the second fiscal quarter, the company approved two new communities in Charleston and Maryland. In addition, the company now has ongoing Gatherings activity in Houston, Orlando, Dallas, and Nashville.
"We had a strong second quarter of fiscal 2019, with our results surpassing our expectations across nearly every operational metric. We benefited from the decrease in mortgage rates, which has contributed to improved affordability and a more favorable demand environment,” said Allan P. Merrill, president and CEO of Beazer Homes. “At the same time, as part of our ongoing stock and debt repurchase program, we bought back an additional $7.5 million, or 652 thousand shares, of stock and retired more than $5.0 million of our outstanding Senior Notes.”
“During the quarter, we also took impairments on several of our California assets. In response to recent changes in market conditions, we concluded that it had become necessary to reduce prices in some of our active communities, all of which were previously classified as land held for future development. Additionally, after a thorough review of our California assets, we made a strategic decision to sell or activate all of the remaining assets which were still classified as land held for future development. Although these decisions led to an impairment this quarter, our actions will enable us to increase our sales pace, generate cash more quickly and redeploy this capital to more attractive investments.”
*A previous version of this article stated that Beezer Homes USA is exiting the state of California, which is inaccurate.
