Beazer Homes USA made little noise during its conference call Tuesday about the fact that it managed to book a small profit its fourth quarter, which ended Sept. 30. Perhaps because the modest $35.3 million ($0.87 per share) gain had more to do with its considerable debt restructuring work than with closing homes.
Total revenue at Beazer was $376.3 million for the quarter, down 42% from the $649.8 million in the same quarter of 2008. And home closings at 1,685 were down 24.3%. But because the company was able to buy back its debt at nearly 36% of its face value, it was able to book a pre-tax gain of $89.3 million, giving its balance sheet a boost. It also helped pare down the company's debt from $1.525 billion to $1.39 billion.
"We have been at this [restructuring and decreasing debt and recapitalizing the company] about six months," said Beazer CFO Allan Merrill. "I think we have made reasonable progress, but we have a lot more to do."
Merrill announced the company will register shelf stock that could be sold in the future, "directly indicating that we continue to take steps toward the recapitalization."
There was some encouraging news from the company's sales department. New orders were up 2.4% year-over-year to 1,685 houses. And the cancellation rate also fell by 8.6%. Still, at 34.7%, it's much higher than most other production builders.
CEO Ian McCarthy is optimistic that the extension and expansion of the tax credit for home buyers will present a six-month window of opportunity for the company to boost its sales considerably.
"There is a six-month runway on the tax credit," McCarthy said. "I think it's the industry's job to convince buyers that now is a great time to buy a Beazer home."
A sales campaign that emphasizes lower interest rates, lower home prices, and the tax credit should "get some momentum back in the market."
Already Beazer has seen some improvements, particularly in its Mid-Atlantic region, Indianapolis, Houston, Nashville, Charleston, S.C., and Orlando and the Florida panhandle. Though the company is only expecting sales to be slightly better in 2010 than 2009.
McCarthy also touted a partnership it recently established with Hearthstone to market, sell, and build out 462 lots in six Atlanta communities as a potential model for new business down the road. Essentially Beazer will be paid a fee to build out the lots versus split a profit.
"We do think that this is a way of doing business that we could replicate in other markets with Hearthstone and others," said McCarthy. "We would certainly like to take this model and show it to some banks we have been talking to in a number of other markets" as a solution to selling some land they might have repossessed.
McCarthy said he couldn't give a definitive answer about how much the company stands to earn in the fee-building arrangement with Hearthstone because the pay rate will vary depending on a number of factors such as price, volume, and speed of sale.
"I will tell you certainly that acting as a contractor with limited capital and limited risk involved will be a lower margin," he said. However, not having the risk of owning the land has its own benefits.
Another recent government action should also bring more cash to Beazer. The extension of the tax code's net operating loss provision includes more time to collect tax refunds for recent losses from taxes paid during the boom years.
"We expect to apply for a tax refund of $50 million related to the 2004 tax year," said Merrill. The company could have collected a $75 million tax refund, but its stock traded so actively that it triggered a change of control provision in the tax code, effectively limiting the company's ability to collect these refunds.
