Beazer: Saving Incentives for Worse Times?

 |  Includes: BZH, ICF, IYR, XHB
by: Judy Weil

From Beazer Homes FQ109 conference call: (NYSE:BZH)

No incentives or price reductions last quarter in case the homebuilder needs to use more of them this quarter when it hits the “big” selling season:

We did not offer additional incentives during the quarter to purchase volume... If we resume offering additional sales incentives or sales price reductions in response to further market deterioration it is possible that such changes could lead to additional impairments.

Q: Given that you guys decided to stop cutting prices and the way the mechanics of impairment testing work, did you consider using the lower price in your indication of impairment test to reflect what kind of pricing you might need to actually clear sales at the level we are today?

A: We made a number of sales, obviously was down 54% from last year, but we made a number of sales during the quarter without having to offer the so called extra inducements... What we didn’t do was try and chase an extra one or two or three hundred units with price because had we done that then we would have had to consider whether or not those prices were inductive of current market trends. And what we try to say is that we wanted to get into the spring selling season out of what is obviously the weakest period seasonally and all of the macro issues that were happening in the quarter to have a better sense of where markets were and I think over the next 90 to 180 days, we would have a pretty sense of that and if things change our impairment calculations will reflect that.

If a stimulus package did come in and started to accelerate the sales rate then that might mitigate against future incentives.

Plenty of debt:

As of December 31, 2008 our total debt stood at $1.7 billion decreasing about $46 million from the prior year and $11 million from September 30, 2008. We had cash and cash equivalents of $437 million compared to $584 million at September 30, 2008 and $237 million at December 31, 2007.

Plenty of land:

Q: You have a tremendous amount of land right now relative to your bid but especially this $400 million of land held for future development, does that bother you that you may have too much in that respect given the outlook for the industry?

A: No… we have looked at the land that we are using today, the land was held for sale and the land was held for future development, we look at that all the time, we think those are assets that have a future value to the company and so we are holding on to it

Made one good land deal at an active community, but that’s it for land opportunities:

The land and land development expenditure for the first quarter included approximately $20 million related to the renegotiation of several land banking arrangements, which enabled us to complete land purchases at meaningful discounts to previously contracted prices.

There aren’t any other larger opportunities that exists within that portfolio.


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