BEAZER HOMES USA INC (BZH)·Q1 2025 Earnings Summary

Executive Summary

• Q1 FY2025 was profitable but below internal sales and closings guidance; homebuilding revenue rose 20.9% to $460.4M while diluted EPS fell to $0.10 on margin compression driven by higher spec mix and incentives .
• Management outlined Q2 guidance of ~1,050 closings, ~$515k ASP, adjusted EBITDA >$30M, SG&A <13%, and diluted EPS ≈ $0.30, with sequential margin improvement from deferred high‑margin closings and lower spec mix .
• Full‑year outlook shifted to the low end of prior gross margin range (≈19.5%) with ASP approaching $530k; share repurchases accelerated post‑earnings ($4.1M at $21.86), moderating near‑term deleveraging targets and resetting net debt-to-cap guidance trajectory .
• Strategic catalysts: upsized revolver to $365M, 60+ community activations in FY2025, and Zero Energy Ready momentum (98% of starts), with initiatives to improve to‑be‑built financing and reduce build costs by ~$3,000 per home .

What Went Well and What Went Wrong

What Went Well

• Community count and lot position expanded; average community count up 17.8% YoY to 161 and controlled lots up 9.5% to 28,874, positioning for growth in FY2025–FY2026 .
• Zero Energy Ready strategy gained traction: 98% of starts were ZER; CEO: “Our homes are different, and they're better, and we can prove it.” .
• Liquidity and funding flexibility improved: revolver upsized to $365M post‑quarter and total liquidity remained $335.4M; CFO: “Earlier this week, we successfully upsized our revolver to $365 million.” .

What Went Wrong

• Missed internal sales and closings guidance; uneven demand in November–December with aggressive competitive incentives in Texas and Florida pressured sales pace and margins .
• Margin compression: homebuilding gross margin fell 470bps YoY to 15.2% (18.2% ex interest), driven by price concessions, closing cost incentives, and a ~70% spec mix with 3–5pt lower margins vs. to‑be‑built .
• Operational delays deferred 47 high‑ASP, high‑margin closings due to Houston utility reprioritizations and meter availability in California, pushing revenue and margin into spring .

Financial Results

Note on estimates: S&P Global consensus data for Q1 FY2025 could not be retrieved at this time due to API limits; we will update when available.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO on miss drivers and mix: “We missed both our sales and closings guidance…specs represented nearly 70% of our closings…we expect to narrow the [margin] gap.” .
• CEO on ZER strategy: “These homes represented more than 85% of our sales…we've reduced the cost to achieve the DOE standard by several thousand dollars per home.” .
• CFO on Q2 and full‑year outlook: “We anticipate closing around 1,050 homes…Adjusted gross margin should be up a bit sequentially…This should lead to diluted earnings per share of about $0.30…we now expect full year margins around 19.5%.” .
• CEO on mortgage innovation: “One‑way rate locks with an embedded permanent rate buydown…provide protection from rising rates while allowing buyers to benefit if rates decline.” .
• CEO on conviction despite potential tax changes: “We’re full steam ahead…we build a home that you can pay a lot less [for energy],…comfortable in every room,…cleanest possible indoor air.” .

Q&A Highlights

• Incentives and margin pressure: Management observed ~1pt pressure over ~4 months from rising rates and year‑end competitive promotions; Q1 gross margin guided closer to 19.5% on this dynamic .
• Margin ramp drivers: Sequential improvement expected from deferred high‑margin closings, lower spec mix, fewer prior series homes, and ~$3,000 build cost reductions .
• Spec vs TBB margin differential: Specs run ~3–5pts below to‑be‑built margins; long‑term aim is majority TBB (e.g., 60/40) supported by financing innovation .
• Energy efficiency and policy: Strong commitment to ZER regardless of potential changes to credits; value proposition rests on savings, comfort, and health benefits .
• Impairment/abandonment risk: No expectation of material changes; abandonment charges may occur modestly as part of growth diligence; land pricing in line with market .

Estimates Context

• S&P Global consensus revenue and EPS for Q1 FY2025 were unavailable due to an API limit at the time of this analysis; we will anchor estimate comparisons on S&P Global when accessible.
• Near‑term directional context: Company guided Q2 EPS ≈ $0.30, with adjusted EBITDA >$30M and sequential margin improvement, suggesting potential adjustments to street models if demand and mix trends stabilize as outlined .

Key Takeaways for Investors

• Mix normalization toward to‑be‑built and cost reduction actions should lift margins in 2H FY2025; monitor spec mix cadence and realized margin delta vs. to‑be‑built .
• Regional exposure matters: TX/FL remain incentive‑heavy; continued strength in CA/NV/Mid‑Atlantic supports sales stability; watch promotional intensity in TX vs. Beazer’s pricing discipline .
• Capital allocation pivot: Accelerated buybacks at a discount to book may enhance per‑share value but slow deleveraging; updated net debt-to-cap path reduces near‑term leverage improvement .
• Liquidity and funding runway intact: $335.4M liquidity and $365M revolver underpin community activation plan; execution on 60+ launches is central to FY2025 top‑line growth .
• ZER differentiation is strategic: With 98% starts ZER and awards, Beazer’s energy efficiency positioning may support ASP resilience and customer value perception even in a rate‑constrained market .
• Near‑term trading implications: Expect sensitivity to monthly order trends, incentive intensity in TX, and confirmation of Q2 guidance milestones (closings ~1,050; margin “up a bit”); repurchase pace may provide technical support .
• Medium‑term thesis: Community growth to ~180 in FY2025 and >200 by FY2026, plus mortgage innovation and cost reductions, should drive revenue growth and double‑digit returns despite macro volatility .