Thursday, November 22, 2012

Beazer (BZH) Earnings Prompt Homebuilder to Cut FY2010 Guidance

Just two weeks before the end of its 2010 fiscal year, Beazer Homes USA, Inc. (NYSE: BZH) has warned that the company’s target for new home orders for the full fiscal year is in jeopardy. Beazer had projected that FY2010 orders would surpass FY2009 orders of 4,205 new homes. To meet that projection, Beazer needed to receive 767 orders in its fourth quarter which ends September 30. The company now says that it expects 700-800 new home orders in the quarter, “resulting in year-over-year new home orders that may be above or below Fiscal 2009 results.”

It’s risky to estimate how this announcement will affect the rest of the homebuilders. In the past month, Beazer’s shares have risen 26%. Shares of Pulte Group, Inc. (NYSE: PHM) have risen 8%, and shares of Toll Brothers Inc. (NYSE: TOL) have risen more than 13% while shares of KB Home (NYSE: KBH) are up more than 16%.

The forces behind these rising share prices appear to be low mortgage rates and lower home prices. Those forces have presumably combined with pent-up demand from buyers and a belief that the federal government will do something to jump-start the housing market.

Clearly low mortgage rates and more reasonably priced houses is not doing the trick. If there is pent-up demand, it has not been released. And if the government is going to send in the cavalry, there’s no sign of it yet.

Beazer’s announcement today may cool the homebuilders a little, but the overall bullishness of the last month had no good reason to start and, thus, it has no real reason to stop. The reasoning might be that at worst Beazer may just remain flat with last year. After quarters of losses, that’s not so bad, so let’s keep buying.

To be fair, Beazer expects to close about 4,600 sales in FY2010, up from 4,330 in the previous year. That’s good, as is the reiteration of the company’s expected gross margin of 11.7%, excluding impairments and abandonment charges, and Beazer’s end-of-year-cash balance of more than $500 million.

The company is also planning to spend less on land acquisition for the 2010 fiscal year. Previous estimates were set at $200-$220 million, but the company now expects to spend less than $200 million. That makes sense, too, because there’s no sense in buying more land, even if it’s cheap, when the company can’t sell what it has.

Beazer’s shares are off more than 3.5% in early trading this morning. KBH shares are down more than 2%, PulteGroup shares are down more than 1.5%, and Toll Brothers shares are off less than 1%.

As of this writing, Paul Ausick did not own a position in any of the stocks named here.

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