Beazer Homes shares soared roughly 30 percent in a single day after the Atlanta-based homebuilder reported fourth quarter and full fiscal year results on Tuesday. From the reaction of the stock yesterday, you would think Beazer had patented a new home construction process or something else miraculous. Obviously something was thrilling investors, because it wasn’t demand for Beazer homes in the fourth quarter, which fell according to the company’s press release. According to Beazer, unit orders during the fourth quarter fell 0.8 percent to 1305 homes.
Beazer’s homebuilding revenues rose 14 percent for the fourth quarter. Average selling prices rose 6.6 percent to roughly $372,600 while deliveries increased 7.4% for 2044 homes sold during the quarter. Pretty good numbers for sure, but that doesn’t explain the parabolic ramp of 30 percent in a single day. A big short squeeze looks like a more credible explanation.
For the full fiscal year, Beazer somehow managed to accrue a $45 million loss from continuing operations. Let that sink in for a moment. In one of the most spectacular bull markets in the history of the United States with home prices still near record highs, this builder generated a net loss.
Beazer’s fortunes improved in q4 2018 of course, as the company saw a net profit of $60.5 million. The only problem is more than a third of that Q4 profit was due to lower taxes. Beazer’s year-over-year Q4 tax expense went from $4 million last year to an $18.9 million credit this year. Beazer’s Q4 cancellation rate edged up to 21.5 percent from 20.6% last year. Orders per community slid 5.4% to 2.7.
Even with the meteoric rise yesterday, Beazer Homes shares were still down 43 percent year-to-date. But never fear. Beazer’s CFO, Bob Salomon, said Beazer’s decision to authorize a $50 million share repurchase program is part of their “disciplined approach to capital allocation”. Beazer is apparently going to fund the share repurchases with cash on hand and cash generated from operations.
I’m sure this will work out well. Unlocking all of that shareholder value did wonders for GE.
Higher mortgage interest rates are still taking a big bite out of the demand for new homes. The Dow Jones Home Construction index is down over 30 percent this year. Michael Lebowitz has an interesting piece out today on the home building sector, detailing the headwinds that come with higher interest rates and payments.