Major U.S. Home Builder Posts $59M First Quarter Loss

Some U.S. home builders are taking a beating thanks to the well-publicized housing market slowdown. Beazer Homes USA Inc., in the first quarter of 2007, posted a net loss of $59 million on $806.4 million in revenue, and company officials have yet to see any evidence of recovery.

The Atlanta-based home builder now expects the company will close about 12,000 homes this year - “the low end of the target” projected for the fiscal year 2007, which ends September 30, said Ian J. McCarthy, Beazer president and CEO.

According to the Phoenix Business Journal, Beazer incurred $25.2 million in pre-tax charges to abandon its land option contracts in the first quarter alone. This took place mostly in California and Florida markets, and $94.7 million in pre-tax charges to recognize inventory impairments.

The company also absorbed $4 million in severance costs related to the alignment of its overhead structure. Its financial results “reflect how challenging the housing market remains,” McCarthy said, adding that the Florida housing market is probably the most challenging.

Most markets continue to experience lower demand for new homes, higher contract cancellation rates, and increased discounting on new homes.

With record-low mortgage loan costs fueling a buying frenzy for five years, builders followed suit - only to watch the bottom drop out in 2006, as the demand for homes wanes and the inventory remained.

In turn, Beazer will likely not start new communities this fiscal year, McCarthy said, instead trying to drive sales in March as quickly as it can in existing communities.

The spring, historically, tends to be the best season for sales, especially involving new home buyers. We’ll see if that holds true this year under the tumultuous market conditions.

Beazer had 1,779 new orders for houses in the first quarter - a 54 percent decline compared with 3,872 in the first quarter of 2006. The home builder closed on 2,660 houses in the period - a drop of 31 percent compared with 3,829 in the first quarter of 2005.

McCarthy cited both reduced demand across the company’s markets (due to a lack of home mortgage demand) and a rate of cancellations at 43 percent, compared with a more historically normal level of cancellations at 26 percent in the first quarter of 2005.

However, the rate of cancellations was lower sequentially from 57 percent in the fourth quarter of fiscal 2006. Beazer has begun some initiatives to position itself for the historically strong spring season.

“These initiatives include implementing overhead reductions, converting existing backlog into closings and reducing unsold home inventory,” McCarthy said.