Beazer Homes Q4 2025: Contradictions Emerge on Gross Margins, Spec Home Strategy, and Cost Savings

Date of Call: None provided

Financials Results

• EPS: $1.02 diluted earnings per share (Q4 FY25)
• Gross Margin: 17.2% in Q4 FY25; Q1 FY26 guidance ~16%; company expects ~3 points of margin improvement by Q4 FY26 driven by $10k rebid (~2 pts), mix shift and new communities

Guidance:

• Q1 FY26: expect to sell ~900 homes (specs up to 75%), close ~800 homes, ASP ~ $515,000, adjusted gross margin ~16%, adjusted EBITDA breakeven to $5M, net loss ~ $0.50/diluted share, land sale revenue ~ $10M.
• Full FY26 goal: meet or exceed FY25 adjusted EBITDA; target 5%–10% increase in closings vs FY25 and higher ASPs.
• Margin plan: realize ~$10k of rebid savings per home, mix shift away from sub-$500k closings, and growth of higher-margin new communities to drive ~3 pts of improvement by year-end.
• Capital: expect >$100M of nonstrategic asset sales at/above book; repurchase at least ~1.5M shares; liquidity ~ $540M at YE.

Business Commentary:

• Profitability and Balance Sheet Management:
• Beazer Homes reported adjusted EBITDA of approximately $64 million and diluted earnings per share of $1.02 for Q4, despite challenging market conditions.
• This was achieved through operational enhancements like rebiding material and labor costs, resulting in savings of $10,000 per home, and strategic asset sales.

• The company also reduced its net leverage ratio to just under 40%, signifying prudent financial management.

• Sales and Inventory Strategy:

• Beazer Homes closed 1,400 homes in Q4, exceeding expectations, driven by 83 model home sale leasebacks and an increased percentage of specs.
• The company maintained a 17.2% gross margin despite increased incentives, indicating effective cost control.

• For Q1 2026, they anticipate 900 home sales with specs representing up to 75% of total sales, reflecting a continued focus on managing inventory levels.

• **Community Growth and Strategic Positioning:BeazerHomes Active Community Count

• Beazer Homes ended fiscal '25 with an average active community count of 164, up 14% year-on-year, and aims for over 200 communities by 2027.
• The company is leveraging its differentiated energy-efficient homebuilding strategy to address affordability concerns, aiming for a double-digit CAGR in book value per share.

• This strategy includes promoting the benefits of lower mortgage rates, utility bills, and insurance costs, offering a compelling value proposition.

• **Land Sales and Capital Allocation:Aerial view of a housing development with a mix of single-family homes and energy-efficient features such as solar panels, low-emission windows, and smart home technology. The layout shows a balance between community growth and sustainability, with green spaces integrated among the homes.

• Beazer Homes plans to generate over $100 million in land sales proceeds in fiscal '26, with significant contributions from strategic asset sales expected to exceed $100 million.
• This capital will be reinvested in areas with higher return potential, reflecting a strategic realignment of the company's land portfolio.
• The goals include reducing speculative buying and focusing on areas where their energy-efficient homes offer a premium value proposition.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted operational progress despite a tough market: Q4 adjusted EBITDA ~$64M and $1.02 EPS; net debt to net capitalization below 40%; averaged 164 active communities (up 14% YOY); expect net leverage to decline several points in FY26 and double-digit CAGR in book value through FY27.

Q&A:

• Question from Rohit Seth (B. Riley Securities): When will the rebid/cost savings and rebate benefits start to hit margins—Q2, Q3?
  Response: Management: No exact quarter given; savings from rebids (~$10k/home, ~2 pts), plus mix shift away from lower-priced communities and higher-margin new communities should drive ~3 points of margin improvement over the year.

• Question from Rohit Seth (B. Riley Securities): Orders improved from 3Q; Q1 guide ~900 orders—what did you see in October/November?
  Response: Management: October was seasonally sluggish; expect typical Nov/Dec pickup and a Q1 sales pace guided just under 2 (about 1.8).

• Question from Alan Ratner (Zelman & Associates): How should we think about land costs as a partial offset to material/labor and mix tailwinds for margin improvement?
  Response: Management: While newer communities may have higher per-lot costs, their product/price mix has shown better margins to date and land cost percentage isn't expected to materially pressure margins as ASPs rise.

• Question from Alan Ratner (Zelman & Associates): With backlog down sharply, how do you bridge to the 5%–10% closings growth target for FY26?
  Response: Management: Backlog is less predictive in a spec-driven market; growth will come from more communities and improved sales pace (ability to turn units under production), especially in the back half.

• Question from Alan Ratner (Zelman & Associates): Thoughts on forward rate commitments and their market impact?
  Response: Management: Neutral/constructive—company offers transparent mortgage-rate buydown choices to customers and supports consumer choice while monitoring market mechanics.

• Question from Alexander Rygiel (Texas Capital): Big-picture strategy on land sales—what are you doing and why?
  Response: Management: Selling nonstrategic product lines or portions of large communities and other assets; expect >$100M of proceeds in FY26, generally at/above book, to redeploy into higher-return, differentiated markets.

• Question from Alexander Rygiel (Texas Capital): Spec home mix—how do you see the mix by end of FY26/heading into FY27?
  Response: Management: Prefer much lower spec ratio, but if market remains weak specs may stay elevated; with market improvement spec-to-to-be-built mix could move toward ~60/40 or 50/50.

• Question from Alexander Rygiel (Texas Capital): Directional thoughts on net land spend next year?
  Response: Management: Net land spend expected to be roughly in line with FY25 (could be a bit more or less); spending is discretionary as community count grows toward targets.

• Question from Richard Reid (Wells Fargo): Can you bucket the $10k direct cost savings between labor and material?
  Response: Management: They don't break out labor vs. material; savings include efficiencies in delivering Zero Energy Ready homes plus negotiated turnkey/piecemeal contractor savings.

• Question from Richard Reid (Wells Fargo): Economics of the 83 model-home sale-leasebacks—how did they perform?
  Response: Management: 83 sale-leasebacks completed; revenue/profitability roughly in line with overall business, with modest financing cost but freed cash redeployed at higher returns.

• Question from Julio Romero (Sidoti & Company): Texas sales pace improved sequentially in Q4—what's embedded for Q1 and the full year for Texas?
  Response: Management: Texas outlook is subdued but improved versus Q3; expect modest sequential gains but not a dramatic statewide recovery over the next 9–10 months.

• Question from Julio Romero (Sidoti & Company): Which markets are showing wage growth that improves affordability for FY26?
  Response: Management: Company-level data shows some markets benefit from wage growth plus lower rates improving affordability; no specific markets named—focus remains on footprints with diversified job growth.

• Question from James McCanless (Wedbush): Should we expect further reduction in specs or will you add specs for spring?
  Response: Management: Specs may increase modestly to prepare for spring but only where sales pace supports it; no aggressive spec buildup will be pursued.

• Question from James McCanless (Wedbush): Visibility on achieving ~$100M land sales and timing of closings growth?
  Response: Management: Closings growth expected to be back-half weighted; land-sale pipeline has strong visibility with multiple counterparties and is expected to achieve ~$100M+ at or above book.

• Question from James McCanless (Wedbush): How much of the deferred tax assets (DTAs), especially energy credits (~$84M), can you monetize before expiration?
  Response: Management: ~$84M relates to energy credits (growing through June 2026 at ~$5k/home); expect to utilize credits over the next several years depending on profitability and the rights plan protects ability to use them.

Contradiction Point 1

Gross Margin Impact of Specs and Incentives

It involves differing explanations of how the company's strategy regarding spec homes and incentives affects gross margins, which is crucial for investor understanding of financial performance.

Regarding gross margin, you reported 17.2% in Q4 and guided to 16% in Q1. With cost savings initiatives and rising incentives, when will the rebate benefits begin—Q2 or Q3? - Rohit Seth(B. Riley Securities)

20251114-2025 Q4: Look, we really talked about three things. So you put it correctly in Q1, obviously going in, we have incentives, higher and specs have been a higher percentage of our sales closings and backlog, frankly. So that you're going to see in Q1 and close in Q1. - David Goldberg(CFO)

What caused the sequential decline in gross margin? - Jay McCanless(Wedbush Securities Inc., Research Division)

2025Q3: Gross margins were 18%, in line with our expectations and slightly below last year. The primary drivers include a 30 basis point impact from a higher spec mix in the quarter and higher incentives in the low teens, both of which were anticipated. - David Goldberg(CFO)

Contradiction Point 2

Spec Home Strategy and Demand

It involves the company's approach to managing speculative homes, which is crucial for revenue forecasting and market positioning.

Should we expect further inventory reduction, or will you need to add inventory for the spring season? What's the direction moving forward? - James McCanless (Wedbush)

20251114-2025 Q4: That's a great question. I think that number will pick up a little bit, honestly, as we get ready for the spring selling season, but we're very careful. We watch sales paces. We don't start specs just to start specs. We react to where the demand is. - Allan Merrill(CEO)

How will the spec home strategy evolve by 2027? - Alexander Rygiel

2025Q4: Ideally, we’d like a lower spec ratio, but realistically, specs drive sales pace. We expect specs to remain high if affordability and inventory issues persist. If the environment improves, we could move to a 60-40 or 50-50 mix. - Allan Merrill(CEO)

Contradiction Point 3

Sales Pace and Market Conditions

It involves differing assessments of sales pace and market conditions, which are critical for sales forecasting and strategic planning.

Can you provide your expectations for Texas' sequential sales pace in Q1? What is embedded in Texas' full-year market outlook? - Julio Romero(Sidoti & Company)

20251114-2025 Q4: April's sales pace doesn't need to change significantly for us to meet Q3 guidance. Our comparison to last year's sales pace is easier in the June quarter, and we have a 10% larger community count. Historically, our Q2 and Q3 are the strongest, and we expect this pattern to continue. - Allan Merrill(CEO)

What were the sales pace in April and the improvements needed in May and June to meet Q3 guidance? - Tyler Batory(Oppenheimer)

2025Q2: Our full year forecast for all three of our Texas markets is subdued but it's nothing like what we experienced in the aggregate in the third quarter of last year. I don't want to get into quarterly state-wide projections but it's nothing like a snap back to what I would call normalcy. We were under 2 in the fourth quarter. - Allan Merrill(CEO)

Contradiction Point 4

Labor and Material Cost Savings

It involves differing explanations of how the company has achieved cost savings, which impacts financial forecasts and operational strategies.

Can you break down the $10,000 direct cost savings into labor and material costs and explain the factors driving these savings? - Richard Reid(Wells Fargo)

20251114-2025 Q4: Well, I can help you in one way and then it's something that's a little bit different for us, and we kind of committed to it last year that we would do it, and that is drive down the cost of delivering a Zero Energy Ready Home. And I think of that $10,000 probably it's not half, but probably several thousand dollars relate to finding efficiencies but maintaining the performance of our homes. - Allan Merrill(CEO)

What are the current trends in labor and material costs? - Tyler Anton Batory(Oppenheimer & Company, Inc., Research Division)

2025Q3: Cost savings have been achieved, with benefits expected in 2026. Opportunities exist for labor cycle improvements. - David Goldberg(CFO)

Contradiction Point 5

Gross Margin Improvement and Cost Savings

It involves conflicting expectations regarding gross margin improvement and cost savings initiatives, which are crucial for financial projections and investor sentiment.

Regarding gross margin, which declined to 16% in Q1 from 17.2% in Q4 despite cost savings, when will rebate benefits from increased incentives begin—Q2 or Q3? - Rohit Seth(B. Riley Securities)

20251114-2025 Q4: As we go through the year, we didn't give an exact timing, but we talked about being able to pick up three points and those are really the three points that we talked about... The direct costs which are nearly two points of margin improvement with the $10,000 of rebid we've got so far. - David Goldberg(CFO)

Will Q2 gross margin be the lower bound for Q3? Can you increase incentive aggressiveness? - Tyler Batory(Oppenheimer)

2025Q2: We expect gross margin for Q3 to be slightly above the 17% realized in Q2. For Q4, we expect to see additional gross margin improvement as we lap higher incentives and lower margin community starts in prior periods. - David Goldberg(CFO)