Macro Tsimmis

intelligently hedged investment

Beazer Homes (BZH) update #9

Posted by intelledgement on Mon, 12 May 08

Our short position in Beazer Homes (BZH) got a nice boost today in the wake of restated 1Q07 and 2Q07 earnings released by management along with long delayed 3Q07 and 4Q07 reports (their 4Q07 ended 30 Sep 07). The restatements were necessary because “the Company’s mortgage origination practices related to certain loans in prior periods violated certain applicable federal and/or state origination requirements,” according to the press release. LOL that is a bit of an understatement; in point of fact, the company is under investigation by the Justice Department and the SEC for potentially illegal practices that harmed not only shareholders but customers.

The bad actors who orchestrated these transgressions were fired earlier this year, and press release details a series of steps the company has undertaken to strengthen their internal controls to prevent a repeat. Furthermore, management intend to negotiate with the Feds and SEC in hopes of settling for a fine. So while a risk of criminal proceedings against the company remains, management appear to be doing a good job of dealing with these issues.

But if fallout from the shenanigans appears to be under better control, the new data revealed in the 3Q07 and 4Q07 reports confirms what we already expected: no hint of a turnaround in the decline of Beazer’s residential home construction business. Of course, these data are now 8-to-11 months old—Beazer suspended reporting quarterly results while they conducted an internal investigation and scrubbed their numbers—and we got the gist of the bad news last November when they reported preliminary numbers. But the new 4Q07 details are sobering:

  • Net loss of $155.2 million compared to $83.7 million of income in 4Q06
  • 3,949 closings down from 6,268 in 4Q06
  • Revenues of $1.10 billion down from $1.83 billion in 4Q06
  • 982 new homes ordered down from 1,921 new homes ordered in 4Q06

For 2007 overall, Beazer lost $411.1 million ($10.70 per share) compared to income of $368.8 million($8.44 per share) in 2006. BZH closed today at $9.46, down 5% on the day.

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