Wednesday, 7 November 2007

Beazer cuts dividend still Chapter 11 front runner

Last month I speculated that Beazer Home USA Inc. (BZH) had thrust themselves forward as the most likely candidate to file for Chapter 11 amongst the major US homebuilders. Beazer moved one step closer to that reality yesterday by cutting their dividend to shore up their capital position. From

Beazer Homes eliminates dividend

Atlanta-based Beazer, which has indicated it will need to restate previous financial results due to an internal probe of its lending and other practices, said late Monday that it's eliminating the 10-cent-a-share dividend, a move designed to save about $16 million annually....

Beazer estimated it can reach a settlement with regulators in a range of $8 million and $15 million to resolve the violations of HUD regulations related to the mortgage-origination business.

On Monday, Beazer said it was unable to report its fourth-quarter and fiscal 2007 results but was providing preliminary, unaudited data. It has negotiated waivers of default from its lenders due to its failure to report financial results on time....

The company also said it continues to scale back its land position in response to lower prices and sales activity in the U.S. housing market. For the latest quarter, it forecast $230 million of charges related to inventory impairments and the abandonment of options on real estate....

"The housing industry continues to face the most difficult business conditions in over a decade," said Chief Executive Ian McCarthy in a statement.

Beazer said it let go about 650 workers, or 25% of its staff, during October.

This really is a company fighting to survive. As is the trend of late, shareholders are calling for the CEO's head. This from Bloomberg:

Shareholder Group Calls for Ouster of Beazer Chief Executive

CtW Investment Group, an adviser to union pension funds with $1.4 trillion of assets, called for the ouster of Beazer Homes USA Inc. Chief Executive Officer Ian McCarthy for his ``stunning leadership failure.''

McCarthy ``allowed Beazer to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives,'' CtW Investment said today in an e-mailed statement.

Also in homebuilder news Hovnanian Enterprises Inc. (HOV) announced some nasty preliminary results for the quarter ended October 31st. From the same article above:

Hovnanian's deliveries down, cancellations up

Another large builder, Hovnanian, said it delivered 19% fewer homes during the October quarter compared to the year-earlier period.

Red Bank, N.J.-based Hovnanian's cancellation rate rose quarter-over-quarter to 40% of gross contracts, up from 35%.

Hovnanian is scheduled to release full fourth-quarter results on Dec. 18.

Some interesting commments from the CEO.

Ara Hovnanian, the company's CEO, Tuesday said U.S. housing won't likely get back to a "balanced marketplace" until 2010.

Meanwhile, 2008 will be "another challenging year" and he's not looking for strong earnings from home builders.

"By the tail end of 2008 we should get some positive momentum in sales, setting up a recovery in 2009," Hovnanian said. Home builders by then should return to profitability, although earnings will be more meager than the recent boom years, the CEO said at the UBS conference.

With at least 2 years to get back to some semblance of normalcy in the homebuilding industry there has to be some consolidation. That means some homebuilders will go under whilst others will be acquired by others with stronger balance sheets. Expect that consolidation phase to kick-in in earnest next year.