Community count growth and improved backlog conversion drove fourth quarter results that outperformed analyst expectations for Beazer Homes.
The 19th-largest company on the 2023 BUILDER 100 list delivered profits of $56 million, or $1.80 per share, in its fiscal fourth quarter, besting projections by more than $0.40 per share.
“New-home orders were up substantially year over year but remained slightly below historical trends as rising mortgage rates led to further deterioration in home affordability,” chairman and CEO Allan Merrill said. “The strength of the economy and a lack of existing homes for sale continued to provide support for demand.”
For the full fiscal year, Beazer Homes recorded profits of $159 million, or $5.16 per share, compared with $220.7 million, or $7.17 per share, in fiscal 2022.
Home building revenue in the fourth quarter decreased 22.2% year over year to $641.8 million, driven largely by a 23.7% decline in home closings to 1,233. Net new orders in the fourth quarter increased 42.5% to 1,003, driven by a 34.8% increase in sales pace to 2.6 orders per community per month and a 5.7% increase in average community count to 130.
The builder’s fourth quarter cancellation rate improved significantly to 16.5% compared with 32.8% in the fourth quarter of 2022. The company’s backlog at the end of the fiscal quarter was 1,711 homes valued at $886.4 million compared with 2,091 homes valued at $1.1 billion in the fourth quarter of 2022. The average selling price of homes in backlog was $518,000, down 5.4% on a year-over-year basis.
For the full fiscal year, home building revenue fell 4.5% to $2.2 billion. The decline was caused by a 10.7% decrease in home closings, offset by a 7% increase in average selling price. For the full year, net new orders fell 4.8% to 3,866 homes due to an 8.4% decrease in orders per community per month to 2.6.
During the earnings call, Merrill updated progress on the home builder’s three multiyear goals surrounding community count growth, balance sheet strength, and the energy efficiency of homes. Merrill said the three targets are the “highest priorities” for Beazer Homes.
At the end of the year, Beazer Homes increased active community count 9% to 134.
“In fiscal year 2024, we expect year-over-year growth in our active community count each quarter. Further out, we have excellent visibility to more than 200 active communities by the end of fiscal 2026,” Merrill said.
Merrill said the company achieved a nine-point decline in its net debt to net capitalization ratio (36%). The company is targeting a reduction into the low 30s by the end of fiscal year 2024 and aims to achieve a ratio of 30% by the end of fiscal 2026.
As its relates to energy efficiency, Beazer Homes expanded the production of homes adhering to the Department of Energy’s Zero Energy Ready standard in 2023.
“The share of Zero Energy Ready starts [jumped] from 2% in the third quarter to 28% in the fourth quarter,” Merrill said. “By the end of fiscal 2024, we expect well over half our starts will meet the Department of Energy standard, positioning us to have every home we start Zero Energy Ready by the end of 2025.”
Cycle Time and Cost Reductions
Chief financial officer David Goldberg said the company set cycle time and cost reduction objectives at the beginning of the fiscal year and made “significant gains on both fronts.”
“In the fourth quarter, cycle times on closings were down more than two months versus the prior year,” Goldberg said during the company’s earnings call. “In fiscal 2024, we expect further improvements as we drive cycle times closer to pre-pandemic levels.”
Goldberg said Beazer Homes achieved significant savings in the back half of the fiscal year primarily due to lower lumber costs.
“From a production perspective, supply chain issues continue to improve, allowing us to reduce construction cycle times and accelerate our adoption of the Department of Energy’s Zero Energy Ready Home standards,” Merrill said.
In the fourth quarter, controlled lots increased 4% to 26,819. Excluding land held for future development and for sale lots, active controlled lots increased 4.8% year over year to 25,567. Land acquisition and development spend in the quarter increased 41.7% to $213.7 million. For the full fiscal year, land spend was essentially flat at $573.1 million compared with $573.6 million in 2022.