Total revenues of $996.0 million missed the $1.04 billion estimate by 4.3%, and diluted EPS of $0.00 missed the $0.20 estimate; excluding $23 million of Beazer acquisition costs, EPS was $0.22 per basic share.
Full-year guidance of approximately 9,250 home closings was reiterated, against 6,127 closed through nine months.
Margins kept falling: homebuilding gross margin of 14.9% against 17.5%, adjusted 24.1% against 26.7%, and pre-tax income of $13 million against $61 million.
Orders weakened: net sales fell 15% to 1,712 and backlog dropped to 2,064 homes from 2,319 at June 30, though net sales excluding built-for-rent rose 6%.
The one thing that matters: the reiterated 9,250 target needs roughly 3,100 fourth-quarter closings against 1,967 this quarter, and the release does not say how much Beazer, acquired October 20, contributes.
Key metrics
Metric
Reported
Prior year
Change
Homebuilding revenues
$942 million
$917 million
+3%
Home closings
1,967
1,915
+3%
Net sales
1,712
2,021
—
Homebuilding gross margin
14.9%
17.5%
—
Pre-tax income
$13 million
$61 million
—
Backlog
2,064 homes, valued at $1.1 billion
—
—
Guidance changes
Item
New guidance
Prior guidance
Full year 2026 home closings
approximately 9,250
approximately 9,250
Quality of earnings
Reported earnings understate the quarter by the deal costs, but the core still fell. Excluding $23 million of nondeductible Beazer transaction costs, pre-tax income was $37 million and EPS $0.22 per basic share, still well below $61 million and $0.47 a year ago.
Leverage built ahead of the acquisition. Revolver and other borrowings rose to $1.24 billion from $822 million at December 31, inventories to $2.52 billion from $2.03 billion, and total debt to capitalization reached 54.3%.
Small items run both ways. Inventory impairments cost about 70 basis points of gross margin, while other income included $5 million of gains, mostly unrealized, on the pre-acquisition Beazer stake.
Gotchas & watch items
More charges are coming: management expects additional transaction and integration costs plus deal abandonment charges in the fourth quarter as it prunes the combined land portfolio.
The headline order decline is built-for-rent: net sales fell 15% to 1,712, but excluding built-for-rent activity they rose 6%.
Pricing is slipping: average price of homes closed fell to $459,148 from $476,962, with Midwest down to $523,557 from $559,987 and Mid-Atlantic to $398,410 from $419,911.
The preferred stock was refinanced larger: $154 million redeemed and new preferred issued for net proceeds of $217 million.