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"Beazer suspends dividend, cuts jobs; no relief for Hovnanian
12:13 PM EST November 6, 2007
BOSTON (MarketWatch) -- Beazer Homes USA Inc., the home builder that has been rocked by an investigation into its mortgage-origination business in addition to the housing pullback, has suspended its quarterly dividend in an effort to firm up its capital position.

Meanwhile, Hovnanian Enterprises Inc. said early Tuesday that net contracts in the company's fourth quarter ended Oct. 31 dropped 10% from a year earlier, saying its October sales pace in most markets "significantly deteriorated" in relation to recent months.

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.

The step by Beazer's board was "prudent in light of the continued deterioration of the housing market," the company said.

Last month, the builder said it found evidence that workers in its mortgage business violated Housing and Urban Development regulations. Its probe also uncovered evidence of other accounting irregularities that will lead to expected restatements, Beazer said. See previous story.

On Tuesday, 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.

For the quarter ended Sept. 30, Beazer said home orders fell 53% from a year earlier, to 973 units. The cancellation rate was an "unusually high" 68%, which the company blamed on tightening in the mortgage markets during August and September.

Shoring up its financial position, Beazer said its cash balance at the end of the latest quarter was $459.5 million, up from $128.8 million the previous quarter. It has repaid roughly $75 million in secured debt, pledged $107 million to collateralize its outstanding letters of credit, and paid a consent fee to holders of its senior notes and senior convertible notes and related expenses totaling $21 million.

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.

Beazer's also examining the recoverability of its goodwill, which could lead to additional impairment charges.

Pink slips galore

"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.

"With recent industry data suggesting that market conditions may deteriorate further before a recovery is underway, we need to adapt and further align our cost structure and investment levels to expected lower volumes," McCarthy said. "While these decisions are not taken lightly, they are necessary in order to maintain our sound financial position."

Heading into Tuesday's session, Beazer's shares were off about 79% so far this year, falling more than a home-builder sector battered by plunging home sales and fallout from the subprime-mortgage mess. The stock was off 0.8% to $9.44 in late-morning trades.

CtW Investment Group, a Washington, D.C.-based firm that works with labor unions on shareholder issues, on Tuesday called on Beazer's board to remove McCarthy, the CEO, and name an independent board chair.

"As the recent CEO terminations at Merrill Lynch and Citigroup make clear, shareholders expect swift board responses to failed leadership in the wake of a mortgage meltdown that has wrought havoc on the financial service and homebuilder industries," the group said in a statement. "Against this backdrop, it is disturbing that the Beazer board has yet to remove Mr. McCarthy, who is responsible for the most stunning leadership failure in the entire home-building industry."

CtW said McCarthy "allowed Beazer to violate federal law, improperly account for land development costs and sale-leaseback transactions, and provide undisclosed loans to executives." Meanwhile, the company's compliance problems "have provoked a crisis of confidence that has driven its stock down 80% so far this year and led to cancellations of 68% last quarter."

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%.

"The primary reason for the increase in the company's cancellation rate is the tightening of mortgage underwriting standards, which has lead to some customers canceling their contracts due to an inability to obtain mortgage loans," the company said.

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

In September, Hovnanian ran a national weekend sales campaign called "Deal of the Century" that featured deep price discounts and concessions.

Banc of America Securities analyst Daniel Oppenheim said sales "likely fizzled" after Hovnanian attempted to pull away the incentives from the promotion.

"We expect that Hovnanian will reintroduce discounts similar or greater than before in order to maintain sales and generate positive cash, since competitors who matched its temporary promotions actually set new market prices," he wrote in a research note.

Hovnanian shares were off 2.8% at last check."

Guess they shot themselves in the foot with the sales promotions, huh?

/tricia