Will Beazer Survive ?

Beazer Homes (BZH) CEO Ian McCarthy anticipates 2008 to be another difficult year. He says the Atlanta-based builder is focused on managing issues that have surfaced over the past few months, such as a recent financial restatement and an internal investigation concerning compliance. The company also is installing a downturn management plan that will focus on cash savings across the board.

Beazer’s latest battle plans were announced today. The company also revealed some of its fourth-quarter results. Beazer is in a restatement period until May 15, 2008, so the quarterly results were incomplete. The most telling figure from the report was the cancellation rate, which logged in at a stunning 68 percent.

Leslie Kratcoski, Beazer’s vice president, says that “headline issues” had a significant impact on the percentage. Federal, internal, and local investigations, top executive firings, default notices, and heavy losses have kept the builder mired in controversy this year. And McCarthy says the publicized incidents definitely delivered a blow to the builder’s sales. Of the 3,000 units sold, an astonishing 2,000 were cancelled in the fourth quarter.

Prospective homebuyers in the Carolinas walked away from Beazer Homes in the fourth quarter, contributing to the highest cancellation rate among its peers.

Beazer Facts:

  • Unusually high number of foreclosures in Beazer-built neighborhoods
  • Beazer’s mortgage-origination business violated federal lending rules.
  • Beazer is the subject of a federal criminal investigation and a formal inquiry by the Securities and Exchange Commission, along with lawsuits filed by shareholders, customers and employees. The company has estimated it can reach a settlement with federal officials for penalties between $8 million and $15 million.
  • Beazer is still conducting an internal audit investigation and will likely restate financial results.
  • In June Beazer said it fired its chief accountant for shredding unspecified documents. It also fired its chief counsel in February for “personal conduct” that violated company policies.
  • Beazer recently negotiated a waiver with its creditors on $1.5 billion in loans that were in danger of default. The default waiver, which lasts until May, cost the company $18 million.
  • Cancellation rates dropped by 68%.

The short interest in this stock is whooping 95%. Their debt/equity ratio is above 1. Revenue, earnings, profit all are down. Add to that they suspended the dividend. The stock has lost 84% this year and currently closed at 7.33$ today. The bad news is never-ending…

So will Beazer Survive ? I guess not….They would need a miracle to save themselves.

Also check out Cramer’s pick on Housing stocks and Beazer.

Recommendation: Consider shorting BZH on any pops.

Disclosure: Short position in DHI and BZH

  • hey..are you shorting the housing sector?

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    Looks like you are minting big money…!!