KB’s Mezger Emerges from the Shadow of His Former Boss
KB Home chief executive officer Jeff Mezger is a cautionary tale incarnate, in a positive sense. He succeeded the larger-than-life Bruce Karatz as KB chief, just as 2006 shut its eyes on all that was home building’s halcyon era three years and a life-time ago. Almost like an understudy thrust suddenly into a lead role on Broadway, the limelight was all Mezger’s.
What a tough act Mezger had to follow in terms of the legend Karatz had become. If there were doubts about Mezger’s ability to step out of the shadow of his former boss, they should be fading memories by now.
Inside of a year, Mezger–who’d gotten credit for developing an internally vaunted KB Next program for transforming construction operation management, product offerings, and overhead costs inertias around a streamlined organization–was retooling KB’s skill set. Gone was the strategic prong focused on elevating KB Home’s average selling price from the bottom of the cellar among its peers. Gone was the have-it-anyway-you-want-it infinitude of choices, options, and upgrades, in favor of a manageable spectrum of choices based more on monthly-payment reality vs. constant house price appreciation fantasy.
KB Home bee-lined for its roots in entry level, and having picked up word that at least some home builders in some markets were reshaping product offerings down to the square foot based on real money monthly payments–Meritage, for example–KB swung for the fences in its value engineered offering. The Open Series was born.
What Mezger did earlier on than most of his CEO peers was to act rather than to watch. If one was a spectator for too long into 2007–believing that a tide of worldwide liquidity was due to reinforce demand the way it had again and again from 2003 to 2006, one got stuck in the financial maelstrom that became the global economic crisis of 2008.
If you were Jeff Mezger, you got ahead of the curve. You were looking at the same data he was in 2006 and 2007–foreclosures were a wave that was rising, the economy was weakening, and credit and jobs were going to come under severe stress.
To cut his land losses, keep the company focus on moving inventory, and do what he knew how to do well from his time in KB’s far-flung trenches, he ratcheted up emphasis on construction speed and lowering cost. He wanted to own the new-home alternative to foreclosures, and he knew his boys in the field could get KB there if they had to. And they did.
For more than a year–mostly in 2008–Mezger took a fair amount of grief on orders, overheads, and financial performance decline. About the only positive piece of the KB Home story from an outsider’s perspective was the sale of KB Home’s French unit, the one-time benefit of which saved a quarter’s worth of profitability and became KB’s dry powder for times ahead.
Right out of the gate as KB launched its Open Series, it found success.
- Here’s comment from Mezger on the role of the Open Series in KB Home’s Q3 financial report last week.
At least one or two of every 10 prospective home buyers who were looking to move into homeownership for the first time wanted a new home, vs. a financially distressed home. The Open Series not only did well in its own right, it attracted copy-cats–low-cost, simplified, reduced square footage homes that would be built to fend off foreclosure sales from complete domination of the landscape.
Of course, privately funded home building companies found it unfair. The terms of their bank loans prevent them from writing down their land costs, lowering the direct construction costs and price of the home, and pressing “unload.” The same impairment that hits public companies’ shareholder equity can take away everything a private home builder owns 10 times over.
But what Mezger and those others who’ve come into the market with me-too low-cost models for entry-level price points have done is to create a niche opportunity just above that price level for public and privates where they can fight more expensive foreclosures. That might mean that a positive story at the lowest end for publics could soon provide a price point haven for privates to offer more at a great value–but they still have to build fast.
We were talking with some younger professionals recently who more or less affirmed Mezger’s bet that, tax credit or no, entry level buyers are the stepping stones to recovery.
One such young professional said, “Put it this way, the Social Security system will be shot by the time we retire; 401ks have proven they’re not the answer to a secure post-career life, and companies are certainly not going to take care of us through pensions. So we’re on our own, and real estate is the only asset we can depend on to build up enough value to be able to retire some day.”
Now, it may be that further analysis of personal investment strategic alternatives could reveal that a more diversified program might be wise for this young professional. But homeownership seems to have solidified itself as an anchor to the plan.
So, it’s arguable, given who is keeping their jobs and driving households toward lifestage changes and adjustments at the most accelerated pace, that the $8,000 tax credit for first-time home buyers “pulled forward” buyers enough to deplete demand among them.
Birth rates during the Generation Y years ranged from the mid-3 millions to the mid-4 millions per year. There’s a lot of demand in the pipeline for first-time home buyers, especially when they’re the most-well educated generation in history and are bound for the most part to weather even double-digit unemployment rates with a mission to self-ensure their future.
Point is, the only strategy for right now–whether you’re a multi-regional public executive or a private entrepreneurial firm–is a foreclosure-fighter strategy. Competing against other new-home sellers is still, of course, a given. But the real race is to build fast enough and low-cost enough, at every price point, to compete with a foreclosure or a distressed sale that is 30% below your best sticker price.
You can get at it with your monthly cost-of-ownership story. When younger decision-makers hear that story clearly, they’ll get it.
Lennar Q3 in Subject Line Tidings
In home building, it still may be a misnomer to call quarterly financial reports an earnings report.
Still, the tone of the latest call with analysts, and their take on the most recent performance, is refreshing.
Here’s Subject Lines from several key equity analysts’ post-ups on the Lennar report.
- Stephen East, Pali — Lennar (LEN, Buy, PT $20.00) – Solid Results, Good Guidance. Investors Need To Guard Against Short-Term Exuberance.
- David Goldberg, UBS — LEN F3Q09 EPS: Improving Conditions Already Priced In
- Buck Horn, Raymond James — LEN: Selling Conditions Continue to Improve; Reiterate Outperform
- Josh Levin, Citi — LEN: Migrating to Normal
- Michael Rehaut, JP Morgan — 3Q Order Decline Better than our Estimate; Gross Margins Ahead of Our Estimate; Reiterate OW – ALERT
- Carl Reichardt, Wells Fargo Securities — Lennar Corporation: Reports FQ3 Loss Per Share of $0.97 (Revising Estimates) Gimme a Breakeven
Added up, the analysts have struck a positive chord we haven’t seen in a couple of years… with caveats, of course.
Hovnanian May be Behind the Drywall Curve
Hovnanian Enterprises has a balance sheet bull by the horns, not to mention the rest of the housing crisis to navigate through. What it doesn’t need is a distraction, or worse, an expensive series of defect remediations from building that date back to the halcyon days of home building yore.
But proof that the present is the past minus the worst of the future, the Wall Street Journal walks up to KHov’s 3Q financials with a story, not about how it’s begun to find a stride with a bit of the tail wind of lowered price, low interest rates, and the first-time buyer tax credit, but about Hovnanian’s as-yet undeclared exposure to fallout from Chinese drywall liability.
A snarky comment from analyst Stephen Kim anchors the piece.
“With a number of builders having announced charges [to earnings from drywall] and indicating that a majority of their cases occurred in Fort Myers, it would be surprising if Hovnanian could have completely avoided exposure,” said Stephen Kim, associate portfolio manager at Alpine Woods Capital Investors LLC. “This is definitely an issue that I will be watching when they report earnings.”
Kim, it should be remembered, essentially called a housing turnaround in mid-2008, so it’s heartening to see at least that he’s got his eye on the ball now.
NVR is Home Building’s Curve Buster
The really smart or studious kid in the class always ruined it for the rest of us who lived off the bounty of the teacher’s grading curve. Magically, a mediocre test score or term performance could shine, providing that everybody else did varying degrees of worse than us.
The smartie always foiled that as a grade-management strategy. He or she excelled, and blew the grade curve off the map.
That’s what DC-metro-based home builder NVR ($554.34, down .65, NYSE) does to its peers. They’re sucking wind, and hoping nobody takes note of the fact that in the same headwinds, one of their rivals is actually profitable.
Reports Big Builder:
The company’s merchant builder strategy again paid off. There were no impairments or write-downs for the quarter, but instead the company booked$4.5 million in recovery of land deposits it previously thought uncollectable. It was the company’s second profitable quarter following a loss of $30.5 million in last year’s fourth quarter.
Here’s a blast from NVR’s 2nd quarter earnings announcement, which notes income of $41.4 million for the period:
New orders in the second quarter of 2009 increased 2% to 2,728 units, when compared to 2,670 units in the second quarter of 2008. The cancellation rate in the quarter ended June 30, 2009 was 14% compared to 19% in the second quarter of 2008 and 15% in the first quarter of 2009. Settlements decreased in the second quarter of 2009 to 2,048 units, 26% less than the same period of 2008. The Company’s backlog of homes sold but not settled at the end of the 2009 quarter decreased on a unit basis by 16% to 4,497 units and on a dollar basis by 27% to $1,332,056,000 when compared to the same period last year.
Homebuilding revenues for the three months ended June 30, 2009 totaled $612,488,000, 35% lower than the year earlier period. Gross profit margins increased to 19.3% in the 2009 second quarter compared to 17.9% for the same period in 2008. The 2009 second quarter gross profit margin was favorably impacted by the recovery of approximately $4,500,000 of land deposits previously determined to be uncollectible. In the second quarter of 2008, the Company had recorded a $5,800,000 land deposit impairment charge. Income before tax from the homebuilding segment totaled $62,872,000 in the 2009 second quarter, a decrease of 21% when compared to the second quarter of the previous year.
NVR has cash and equivalents of $1.24 billion. It manages a finite but challenged geographical footprint, and takes no prisoners on competing for every potential buyer prospect in the market. NVR is a win machine; other home builders simply try to copy it.
NVR was in Chapter 11 about 15 years ago. Its rules and its board won’t let it go there again.
At What Price, Couch Time?
The Housing Crisis has its many forms.
- One in five employed American workers does at least some of their work at home.
- More than 30% of single jobholders work on weekends.
- More educated people are more likely to work at home than those with less than a high school diploma.
- On an average day, 22% more women than men do stuff for the household at home, and they spend 23% more time than men doing it.
- One out of five men do housework, whereas every other woman does.
- 96% of American adults enjoy “leisure” activities. Men average 5.7 hours; women 5.1 hours.
You can find this data and more in the American Time Use Survey, just released by the United States Bureau of Labor Statistics.
Housing Crisis’s takeaway. Males cede 90% + of household decisions to women for a little over a half hour of leisure? That’s just lazy.
Seriously, more people are working at home–employed and self-employed–so home office and work space should not be an extravagance or an afterthought for new home building.
Of course, the Wall Street Journal analysis was all about changes in the way we work.
People in professional, production and service jobs worked less in 2008 than a year earlier. People in management and sales jobs worked quite a bit more in 2008 than in 2007, an increase was much larger than for the general working population.
The BLS isn’t big on explanations, but you don’t need the federal government to tell you that workers at companies that have just had layoffs often end up doing more with less — and work harder for fear that they might be next in the unemployment line. Or that sales calls are a whole lot harder when nobody is spending money.
Average Weekday Hours Worked
| Class of Worker | 2008 | 2007 |
| All Wage and salary workers | 7.58 | 7.51 |
| Management, business, and financial operations | 7.85 | 7.66 |
| Professional and related | 7.16 | 7.27 |
| Services | 6.84 | 6.92 |
| Sales and related | 7.59 | 7.15 |
| Office and administrative support | 7.18 | 7.34 |
| Construction and extraction | 8.05 | 7.99 |
| Installation, maintenance, and repair | 8.38 | 8.11 |
| Production | 7.94 | 8.32 |
| Transportation and material moving | 8.19 | 7.81 |
Fannie Kicked in Q1; Mission Position to Blame
Just about six of every $10 Fannie Mae suffered in credit losses in the first quarter of 2009 come from a four-state real estate cataclysm–Arizona, California, Florida, and Nevada.
The Wall Street Journal reports the reason for Fannie’s Q1 woes as follows:
Fannie’s loss was mainly due to a provision of $20.3 billion for future credit losses stemming from the biggest wave of foreclosures since the 1930s. The company also had $5.7 billion of write-downs on mortgage securities created by Wall Street firms and lenders during the housing boom. These securities are backed by subprime and Alt-A mortgages. Subprime mortgages are those to people with poor bill-paying records or high debt in relation to their income, while Alt-A loans typically allowed borrowers to avoid documenting their income or assets.
Subprime and Alt-A loans have been by far the worst performers. But Fannie said its entire loan-guarantee business, including prime loans, is suffering from rising defaults as house prices fall and unemployment climbs.
Fannie and Freddie, which buy home loans from banks and turn most of them into securities for sale to other investors, are suffering huge losses largely because their only businesses are investing in or guaranteeing mortgages. Big banks, even ones with large mortgage exposures, are more diversified and benefited in the first quarter from a surge in mortgage refinancing, which helped offset credit losses.
The Calculated Risk blog digs deeper into Fannie’s 10-Q filing with the SEC, which points up a maze of self-cancelling strategic objectives that would reduce even the most illuminated of organizations to paralysis.
CNBC’s David Faber got out ahead of Fannie Mae’s earnings reporting with this analysis this morning.
Freddie reports next week.
As Toll Rolls, Others May Follow
There are bigger public home builders than Toll Brothers, and there are certainly ones with more mainstream product offerings and conventional business models. Why is it, then, that the financial markets and the media regard Toll as the canary in the coal mine among home builders?
For one, it’s arguably the best known brand name in home building. And if that point is debatable from a national perspective, it’s hardly in question when one shrinks the geography to the northeast corridor of the United States. There’s likely to be a significant correlation between owners of Toll Brothers homes and denizens of Wall Street. It’s a name that simply means home building for many of the investor breed. The world may be Freidman flat, but many of its residents are parochially focused, which still means that West of the Hudson is that wide unknown expanse that is like a foreign concept to many Wall Street players. Which makes Toll the go-to home builder.
What’s more, it has a fiscal year that gets out of the gate Oct. 1, so its financials always seem to be a step ahead of most of the rest of the class. Not to mention Bob Toll, the patriarch of the 42 year old company. Bob opens his mouth, and people listen. Why? He’s funny, and intellectual, and doesn’t seem to be afraid to say what’s really going on. So people listen.
This morning Toll Brothers first quarter financials are out.
The financial media, The Wall Street Journal and CNBC, each sounded the theme that Toll’s performance comped better year on year than the same period in 2008, which echoes the language of the company’s Q1 press release.
HORSHAM, Pa., March 4, 2009 — Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation’s leading builder of luxury homes, today reported a FY 2009 first quarter net loss of $88.9 million, or $0.55 per share diluted, which included pre-tax write-downs totaling $156.6 million. This compared to FY 2008’s first quarter net loss of $96.0 million, or $0.61 per share diluted, which included pre-tax write-downs totaling $245.5 million.
Excluding write-downs, FY 2009’s first quarter earnings were $9.6 million ($9.55 million of which resulted from the net reversal of a prior tax provision), or $0.06 per share diluted, compared to $57.3 million, or $0.35 per share diluted for FY 2008’s first quarter.
In FY 2009’s first quarter, revenues were $409.0 million, backlog was $1.04 billion and net (after cancellations) signed contracts were $127.8 million. These totals represented declines of 51%, 56%, and 66%, respectively, in dollars, and 45%, 51% and 59%, respectively, in units, compared to FY 2008’s first-quarter results.
The Company ended FY 2009’s first quarter with $1.53 billion in cash, compared to $956.6 million at FY 2008’s first-quarter-end. The Company’s cash position was down slightly from $1.63 billion at FY 2008’s fourth-quarter-end, principally due to the payment in 2009’s first quarter of previously accrued taxes and the retirement of purchase money mortgages and other debt. In addition, the Company had $1.32 billion available under its bank credit facility, which matures in March 2011.
The Company ended 2009’s first quarter with a net-debt-to-capital ratio(1) of 14.5%, its lowest level ever at first-quarter-end, compared to 26.8% at 2008’s first-quarter-end. Stockholders’ Equity at FY 2009’s first-quarter-end of $3.16 billion was down 2% compared to $3.24 billion at FYE 2008 and 7% compared to $3.41 billion at FY 2008’s first-quarter-end.
Big Builder offers a brief post-up of Q1 earnings, quoting the quotable CEO Robert I. Toll in his observation of the primary culprit for continued concern.
“We believe weak buyer confidence still impedes the market,” said Robert I.Toll, chairman and CEO. “We have not yet seen a pick-up in activity at our communities other than ordinary seasonal increases for this time of year.”
In UBS equity research analysis of the sector, analysts Eric Crawford and David Goldberg, note faint silver-lining observations in the data and explication from senior management.
As reported on 2/11, net unit orders -59% YOY, averaging just 1 per community for the Q. Despite this, we are encouraged to hear that mgmt is seeing early indications that pricing on land is becoming increasingly attractive, as we continue to believe this is an early indicator of a trough in housing. With its robust liquidity (the co’s net debt-to-cap was 15% at the end of F1Q), we believe Toll is well positioned to take advantage of these opportunities and gain market share from more capital constrained peers.
Michael Rehaut, executive director for JP Morgan equity research on home building punches the data into his Toll model, and out comes this topline take:
Following its 2/11 release of orders, can rate, closings, backlog, and a charges range of $100-200 mil., TOL reported a 1Q (Jan.-end) loss of -$0.55/share, below the Street’s -$0.41 and our $0.47E, featuring land-related charges of $157 mil., which we note was roughly at the midpoint of guidance, as well as core operating margin of only 1.0%, solidly below our 4.7%E and down sharply from the prior four quarters’ 9-11% range. Additionally, TOL noted that the recent pickup in activity was largely seasonal, which we point out is consistent with our view and most other builders’ view of the recent improvement in activity, and therefore is not indicative of a positive trend in the market, in our opinion. Lastly, it also reiterated limited FY09 guidance featuring ranges for closings (2K to 3K) and ASPs ($600 to $625K). Positively, we do note that TOL continues to maintain a strong balance sheet with strong liquidity. None theless, we continue to look for orders and pricing to remain highly challenged, and given our outlook for continued overall difficult conditions in the housing market well into 2009, we continue to expect large impairment charges for the company and the overall industry. Accordingly, we maintain our Neutral rating on TOL amidst our negative sector stance.
Independent housing and economic analyst, Calculated Risk, has a more stark assessment.
In summary: More losses. More write-downs. More cancellations. No guidance. No pick-up in activity.
Statements from Bob Toll himself focus investors on the company’s balance sheet management strength amid continuing headwinds. But he also took a swing for the political fences with remarks that indicate home building leadership has not by any means abandoned its goal for more decisive government policy intervention aimed at spurring demand for new residential housing.
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“Many experts continue to believe we must first stem home price declines before we can resolve the nation’s economic and financial crisis. The recent stimulus bill shows that Washington is paying greater attention to our industry; however, we think more is needed. We advocate a buyer tax credit of $15,000 to be made available to all buyers of homes, not just first-time buyers: We must motivate the entire food chain of home buyers to stop the decline of home prices. Creating a sense of urgency is necessary to motivate buyers to act now; therefore the credit should only be available for a limited period of time.
“If home prices are stabilized, financial institutions, which today cannot value the mortgage-backed securities on their balance sheets, will once again be able to trade these securities; this, in turn, will help stabilize the financial system.
“Housing starts are at their lowest level since measurement began fifty years ago and the resulting job losses have been brutally damaging to the U.S. economy. The new home industry, combined with the related service, building products and home furnishings industries, are together, perhaps, the largest employer in the United States. If Congress and the Administration can effectively call the bottom and thereby put a floor under home prices, we believe the housing market will recover sooner, jobs will be created, bank balance sheets will improve, and millions of people will be able to return to the workforce.”
No doubt, we’ll hear a similar refrain from home building’s CEO breed as Spring financial results surface in the weeks ahead.
Spigot Tightens on Lumber and Building Materials Supply Line
From PROSALES Online, By Andy Carlo: No sense in burying the lead here. Cash = King.
Cash conservation is and will be the new growth, as least for the visible future.
Builders FirstSource, a Dallas-based lumber and building materials dealer that amassed a distribution and market presence empire on the back of a high volume builder strategy, is in heavy-duty damage control mode. Its new scorecard, reports ProSales magazine senior editor Andy Carlo, is to outperform a free-falling market and try to stick around for the eventual and inevitable salad days ahead. Survival is tantamount to a rocket ride to top-tier status in the LBM sector, but no one’s saying it’s going to be easy.
Carlo gleaned statements from Builders FirstSource CEO Floyd Sherman for perspective on the survival plan.
Floyd Sherman, CEO Builders FirstSource, link to Q4 financials
“We felt the impact of these difficult conditions on our 2008 results although we were able to limit it through our action plan,” said Floyd Sherman, Builders FirstSource CEO.
“Our action plan principally consisted of growing market share, reducing physical capacity, adjusting staffing levels, implementing cost containment programs, managing credit tightly, and, most importantly, conserving cash,” he added.
The dealer closed or mothballed 14 facilities during 2008 while lowering its average headcount by over 1,600 to 4,850 in 2008, a decrease of 25.2 percent from 2007. Our headcount at December 31, 2008, was down over 2,100 to 3,274, a 39.3 percent decrease from the beginning of 2008, the dealer said.
As of today, Builders FirstSource operates 58 distribution centers and 57 manufacturing facilities in 11 states.
During a Friday conference call to discuss Q4 financials with analysts CFO Charles Horn was asked about the ability of builders to pay their bills. He said the larger builders still have been paying their bills, but at the same time BFS is seeing more regional and small builders moving toward an orderly liquidation. He said this is because a number of builders’ operations are structured for tax purposes so that the losses incurred by the construction company can flow back to the company’s owner. “I think you’ll see more and more builders say ‘I’ll take the tax refund and wind down operations’,” Horn said.
BLDR intraday stock performance. Click for company update.
Meanwhile, CEO Floyd Sherman said it’s apparent that banks are forcing their private builder borrowers to stop any spec construction, and are requiring builders to reduce inventories before they get any more loans. “We’re going to see some really diminished inventories over the next few months,” he said. Sherman (who appeared to base his forecasts in part on Harvard Joint Center for Housing Studies numbers), said Builder FirstSource doesn’t expect any upturn until at least the third and fourth quarters of this year.
Bears and Bellwethers
As the first week in January goes, so goes … what? January? The Year?
No one knows.
We know that data trends are run amok. Spending’s the only way out of the gloom, but no one save our Ol’ Uncle Sam is fixing to spend right now.
Accelerators of recovery–consumer spending, municipal spending, corporate earnings, income and hiring growth, credit expansion–are in a deep freeze. Federal expansion and spending, necessary though it is, push back the horizon of organic economic growth to some greater indefinable distance. Market forces, devoid of self-esteem, play possum. Forms in triplicate to satisfy regulators visit everyone’s nightmares.
Except for this. No body really knows. So-called fundamentals fooled people when times were unsustainably good, and they may well mis-predict unsustainably negative trends as well. The market turn may have destroyed wealth and dislocated business strategies, but there’s not much evidence it has dissuaded people from adoring their own biases as to technically why things are as they are.
What happens each day and each week affirms bears as being right all along. With everything else going to hell-in-a-handbasket, being right is flaunted as the new being rich.
So what happens in residential real estate as the next 36 months track through a course of varying intensity of pain, redoubled by the headline-risk of reports on last-month’s pain in data releases?
Companies operate. KB Home, for instance, knows that whether it’s six months from now or 18 months from now, an eventual blush of recovery will mean the company will have needed to make itself over. It has been one of home building’s bellwether companies because of its geographical footprint, its brand-centric culture, and its emphasis on massifying customization.
What was the American dream–which put home buyers and lenders into a trance state that convinced everyone that aspiration and attainability had merged into one easy-money solution–was having a lot of say in the design of a new home. When it returns as as realistic goal for those who want to join the ranks of homeowners, the American Dream will be about buying a home that one can afford, and one can get to work from, and one can raise kids in and send them to good schools.
KB Home 1/10/09
So, KB, whose fiscal earnings schedule and its strategy makes it a home building bellwether, says here are our numbers, but more importantly, here is our story. Our numbers–performance for the 4th Quarter–make abysmal seem like to elegant a term to apply. Our story, though, that we haven’t stopped trying to find the right product for what will be the marketplace sometime down the daisychain of events set in motion with the incoming presidential administration’s 24 month Barack Barrage of stimulative programs.
- Big Builder executive editor Sarah Yaussi analyzes KB’s ‘08 earnings story, and its ‘09 plan of action
- The Wall Street Journal looks at how investors in the sector absorbed KB’s outlook in light of other earnings trends and grim monthly jobs data that will continue to serve as a “stark reminder” of the need for government intervention.
Morale mojo–who’s got it and who’s missing it?–will be the business story of 2009. Another 24 months of cost-cut heroics will be a barrier-to-entry, of course. Will management consultancies continue to be able to get away with conceptual niceties like “cultures of innovation” in times like these?
Code for Walters, Smitty’s, as Others Struggle to Survive
The bankruptcy business, it’s safe to say, is hiring. As the economic and real estate economy crises take their toll, companies on the brink face one of two options. One is a last ditch effort to survive, and Chapter 11 may be that last ditch. The other is to resign to the fact that there are no last ditches left as barriers to fatal insolvency. In that case, a gracious exit may be the only course of action left to take.
That leaves number crunchers with skillsets that translate into reorganizing under Chapter 11, or disposing of remaining assets among creditors with one of the healthier career outlooks over the next 12 to 18 months, while operators hibernate and look to protect their personal assets.
Yesterday, Prosales Magazine editor Craig Webb reported on No. 57-ranked building supply dealer, Alexandria, Va.-based Smitty’s, and its Chapter 11 filing in the United States Bankruptcy Court for the Eastern District of Virginia.
Today, we read that venerable 62-year old southeastern regional home builder Jim Walter Homes has ceased operations, shut down by its parent Walter Industries. Big Builder senior editor Sarah Yaussi gets access to Jim Walter Homes’ former president Larry Comegys–a contributor to Big Builder–for insight into the home builder’s end game.
“Even if the markets had continued hot, they’d still be shutting the company down,” Comegys said. “They just weren’t getting the traction they needed. It would’ve been a tough company to sell even in good times….This is 20 years in the making.”
- Read Comegys’ prescription for surviving the next 36 months on a shoestring in the January 2009 issue of Big Builder.
- ProSales’ Craig Webb also details plans for survival of the nation’s 5th largest lumber- and building materials dealer, Boise-based BMHC, which include exiting the once torrid Northern Nevada market as well as shutting down numerous operations in other markets.
Pencil sharpeners will be the hot item at Office Depot this year. Resumes that emphasize cutting costs will go further into the final consideration set than ever. Those with the patience to understand and withstand legalese should also do well as the litany of home building’s casualties grows by the day.