Macro Tsimmis

intelligently hedged investment

Beazer Homes (BZH) update #5

Posted by intelledgement on Tue, 06 Nov 07

More grist for our Beazer (BZH) short mill yesterday and today. Yesterday, management released “unaudited and preliminary fourth quarter financial and operating data” indicating that a charge of $230MM will be required reflecting the cost of inventory impairments and option abandonments. The company did manage to reduce inventory by 14% from last quarter (down 30% from a year ago), and improved their cash position from $129MM on 30 Jun 07 to $460MM as of 30 Sep 07. However, they also announced they had fired 25% of their work force in October—so expect another charge for 1Q08—and had decided to suspend their dividend. Audited 4Q07 numbers—not to mention 3Q07 results and  restatements of earlier periods—await the outcome of several investigations into Beazer operations, as detailed here previously.

Today,  a shareholder advisory group whose union pension fund clients own 300,000 shares of BZH called for the firing of Beazer CEO Ian McCarthy. According to a report by Forbes, “McCarthy allowed Beazer to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives, all while pocketing $57 million in total compensation over the last five years–among the highest pay packages for a CEO of a company of Beazer’s size.”

McCarthy’s strategic and tactical judgments in leading Beazer may not have been optimal, but suffering BZH shareholders can console themselves that his investment management timing remains sterling: he sold 180,000 shares of BZH for $43 last November, pocketing a cool $7MM…right before the big decline began. BZH closed today at $10.47.

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