Beazer Homes USA Inc (BZH) 2004 Q1 法說會逐字稿

Good morning and welcome to the Beazer Homes first quarter fiscal 2004 earnings conference call. All lines will be in listen only until the question and answer session. Please press star 1 on your phone to ask your question. This call is being recorded. If you have any objections, please disconnect at this time. Today's call will be hosted by Ian McCarthy, the company's Chief Executive Officer. Before he begins, Leslie Kratcoski, Director of Investor Relations, will give instructions on accessing the company's slide presentation over the Internet and will make comments regarding forward-looking information. Miss Kratcoski.

Thank you. Good morning and welcome to the Beazer Homes conference call for our results for the quarter ended December 31st, 2004. During this call we will webcast a synchronized slide presentation. To access the slide presentation go to the investor home page of Beazer.com and click on the webcast link in the center of the screen. From this site you may submit questions to us electronically.

Before beginning you should be aware that during this call we will be making forward-looking statements, which are subject to factors that could cause actual results to differ materially from the results discussed in the forward-looking statements. Please refer to page 41 of our 2003 annual report for details. Ian McCarthy, our president and Chief Executive Officer, and Jim O'Leary, our Executive Vice President and Chief Financial Officer, will give a presentation, after which they will address any questions you may have. I would now like to turn the call over to Ian McCarthy.

Thank you, Leslie. Today we're pleased to announce strong financial results for the December quarter, our first quarter of fiscal 2004. Home closings, revenues, and new orders were all December quarter records, indicating continued strength in the housing industry and our position in the market. At the same time we achieved record December quarter earnings illustrating our commitment to achieving profitable growth by leveraging our size, scale, and geographic reach and continuing to execute our specific growth and profitability initiatives.

Specifically, first quarter revenues of $810 million were up 16% from the same period a year ago on closings of 3,608, up 4%. We improved our profit margins and achieved record December quarter earnings of $47.2 million and diluted EPS of $3.41 up 28% and 24% respectively. In the December quarter new orders totaled 3,304, representing an increase of 5% year over year.

In terms of our geographic market, new order growth for the quarter was very strong in the west, especially California, Colorado, and Nevada. Orders were also up in the southeast, driven by strong performance in Florida, Tennessee, and parts of the Carolinas. This was offset partially by a decrease in orders for the prior year in the central, mid-Atlantic, and Midwest regions. The decline in the central region was due solely to weak orders in Dallas. Despite decreasing orders in the mid-Atlantic in the first quarter, this market remains very strong with unit backlog up 30% year over year. The Midwest continues to perform below our expectations. We recently recruited a new regional president responsible for all of our Midwest operations. And to focus efforts on improving our performance there, we are commencing a strategic and financial review of these operations with an aim to develop a comprehensive improvement plan for this region.

Our backlog now stands at 7,122 homes with a sales value of $1.65 billion. Up 15% and 34% respectively from the backlog and sales value of December 31st, 2002. The sizable year-end backlog provides excellent visibility as we move forward in fiscal 2004. Our new orders and backlog levels were achieved on an increase of 8% in our number of active communities during the quarter relative to the same quarter of the prior year. I'll now turn it over to Jim O'Leary to address in more detail our financial results. Jim?

Thank you, Ian. For the quarter ended December 31st, 2003, revenues totaled 810 million, a December quarter record, and a 16% increase over last year's December quarter. This revenue increase was achieved on unit closings increase of 4%, further illustrating the continuing pricing power we're enjoying in most of our major markets. Net income for the quarter was 47.2 million, a 28% increase over last year.

Diluted EPS for the quarter totaled $3.41, up 24% over 2002. Both of these figures represent December quarter records. Net income for both the quarter and year increased more than revenues, reflecting progress in our profit improvement initiatives and the pricing power we continue to enjoy across the country. Beazer Homes' balance sheet position remained strong during the quarter. Debt to total cap and net debt to total cap stood at 48% and 45% respectively, similar to year-ago levels. This includes the 200 million of ten-year 6 1/2 senior notes we issued in November with approximately 102 million of cash on the balance sheet. The issuance of these notes extended our maturity profile, better matching the duration of our assets and our liabilities and providing us with additional liquidity to fund the many organic growth opportunities we see in front of us.

Our land position as of December 31st totaled 84,881 lots, representing a 5 1/2-year land supply based on the last 12 months' closings. At December 31st, 46% of the lots were owned with 54% under option. Fairly consistent with last quarter and in line with our long-term strategy of maintaining roughly a 50-50 balance between owned and optioned land. During the first quarter we increased both our gross and operating margins by 90 basis points. This improvement reflects strong industry fundamentals and our continued emphasis on improved profitability driven through process improvement and focused national account efforts. These gains were achieved despite continued weakness in the Midwest, as Ian referred to, including warranty expenses associated with construction defect claims from water intrusion in one of our Midwest markets. And in addition, we incurred increased marketing expenses associated with our branding initiatives as previously announced.

While this is depressing income in the short term, we believe this strategically important step will provide us with significant long-term benefits. Based on our strong backlog and expectations of continued strength in the housing market, we reiterate our expectation of achieving diluted earnings per share in the range of 14 to 14.75 in fiscal 2004, representing approximately 10% to 15% growth over fiscal 2003. This target represents approximately 10% increase in closings, with the balance coming from margin improvement and price appreciation. Now I'll turn it back over to Ian. We'll conclude our prepared remarks.

Thanks, Jim. In conclusion, our first fiscal quarter results add to a strong track record of performance. As we continue to move forward in fiscal 2004, our strong backlog, up 34% in dollar value, coupled with expectations of continued strength in the housing market, provide us confidence in our future growth opportunities. Through the strategic and financial review we're undertaking in our Midwest operations, we are committed to developing a plan for improving performance there.

We believe strong demographic trends combined with constraints on housing supply will continue to provide growth opportunities for large public home builders such as Beazer Homes. In addition, our continued focus on strategic initiatives that, one, leverage our national brand two, capitalize on our broad geographic profile through focused product expansion and price point diversification, and three, drive best practices to achieve optimal efficiencies will place us in a strong position for continued growth. Jim and I would now be glad to answer your questions, and I'd ask the operator to give the instruction for registering your questions.

Thank you. At this time if you would like to ask your question please press star 1 on your phone. You will be announced prior to asking your question. And to withdraw your question, press star 2. Once again, to ask your question press star, then 1 on your phone. Margaret Whelan with UBS.

Good morning. It's actually William Lam. Good morning. Just a few questions. I was wondering if you could comment on your community openings and closings during the quarter. Were they a little, you know, towards the tail end?

We did have some communities come on later in the quarter, William, but that wasn't a significant driver in the order growth.

So it really was kind of the weakness -- the Midwest weakness that accounted for the difference between the 5% order growth and the 8% community growth?

That’s right.

Okay. And can you also comment perhaps -- I know you don't like to do it, but can you also comment on recent sales trends?

William, I don't think we're going to say anything about trends at this time, but I would say we're just entering the key selling season for the year. This is a key time for us. You know, historically the spring selling season, the march quarter is the peak selling season, and certainly traffic has picked up considerably, but it's what we would normally expect.

And Super Bowl Sunday is around the corner. The other question is in terms of land sales can you provide a little more color on that?

No material impact on profit this quarter, William.

Okay. And was it concentrated in a certain region, or --

There really was nothing, there was no impact on profit this quarter.

Okay. Thank you.

Thanks, William.

You're welcome.

Susan Kim with Smith Barney.

Hi. It's Judd Graham for Steve Kim. Congratulations on another strong quarter.

Thanks very much, Jed.

Just a couple questions. First of all, looking at your average price and backlog here, up pretty strongly year over year. Just wondering if you might in light of that provide some update on what you look for your closing price to be over the course of this year.

We would expect it to trend down. And I think the principal driver of that is mixed to date. If you looked at, going back to William's questions, if you looked at the active subdivisions and the mix of orders that we enjoyed the last quarter, heavily weighting towards the west, where in Las Vegas we've enjoyed great price appreciation, in northern Cal, southern Cal and historically we've got a strong backlog in Virginia and Maryland which are higher average priced sales price markets. That were the orders in the Midwest have been stronger would have trended closer back down to the 210, 220 that we got in the last quarter. It's really driven principally by mix. I think it would be great news for us all if in nine months hence the orders in terms of units is up substantially and the average sales price is trying to back down towards the 210, 220 range. But if it continues going up because the west continues to knock the lights out, that would be fantastic as well.

Great. Okay. Also, on your gross margin here, I think when you guys last spoke about it you might have indicated you weren't looking for a lot of growth in the gross margin this year. Is that still sort of in line with your current thinking?

I think we said 5%, and I think that's a pretty sizable increase. You know, we are enjoying a lot of the benefits from the national accounts program we talked about. You know, we absolutely have enjoyed some price appreciation as we just talked about with respect to our average sales price. Are some of the things coming out a little bit sooner? Yeah. But I think it would be precipitous to raise our guidance right now.

So that was 5% of our earnings growth --

Will be driven by margin expansion, yeah.

We'd like 5% overall.

Just lastly, it looked like your tax rate was down a little bit here in the first quarter. Is that 39% level something we should be anticipating going forward as well?

Yeah, it trended down from rounded up to 39 1/2 to about 39. It's peanuts in the grand scheme of things. But I think you should expect it to be 39 prospectively.

Great. Thanks very much.

Thanks, Jed.

Chelsey Ingenito with Merrill Lynch.

Hi, Chelsey.

Going back to the pricing question in the west, is it a reflection of the overall market or are you shifting your product at all out there?

It's a combination of the two. The pricing is strong in these markets, and we are slightly broadening our product range in the markets. You know, we've been talking about this, and we're starting to do it. It's a long-term process, but I would say you're going to see with some expansion of our product. Now, some is going down as well. We want to get some more of the economy product in all of our markets as well. But where we see the opportunity to move slightly up market, we're doing that.

So maybe west region's moving a little up?

A little more. It's difficult particularly in the California to get down. We're trying wherever we can to keep everything affordable and get down to the affordable levels. But with the availability of land and the densities we can achieve there, it's quite difficult. So I think prices there will continue to go up.

and Chelsey, I think specifically talking about the west, it would be easy -- and I don't want you to leave the call thinking oh, it's just price increases. It's actually judicious management of our leases. We're trying to be careful and judicious when we release as possible so we can try to get as much as we can from pretty strong markets, particularly northern Cal and southern Cal.

It's great for the top line, and particularly you are increasing your subdivisions there. I mean, that was one of the largest increases for the quarter in subdivisions --

It was the largest. Fourth largest.

That pricing is going to continue to roll through. Where else are you shifting your product?

Well, we've really tried to make the economy product in as many markets as we possibly can. When we see a great opportunity there, we see, you know, that affordable end of the market is what we want to do. So when we talk about edging upwards in terms of breadth of the market, we're also, as I said before, trying to get that into all of our Florida markets, our southeast markets, into the central district. We're trying to do that.

Mm-hmm. And in Dallas, can you talk a little bit about what happened there?

Well, it's just one market specific. You know, it's had a weak order trend in the last quarter. It's a market that we have never been that strong in. We're stronger in Houston. The central region is only those two markets. So when you have a weak quarter, it comes out as a large effect on the numbers there. So we're working on that. You know, we have seen some weakness in the market. We think it's a good long-term market, and we're working to bring it back you to levels we accept.

And-l just going back to the communities, how many did you actually open versus how many you closed in the quarter?

Don't have that off the top of my head, Chelsey. We'll get it for you and come back to you before the end of the call.

Do you have the backlog by region?

We do but we're not going to give it to you.

Okay. And lastly, can you expand on your Midwest improvement plan in

It's something that we've made a lot of cases in the Midwest. In terms of positioning in the market. And we now want to see the results of that. As I said, we're coming type the key selling season for the year and we want to make sure we get the best benefit we can out of the markets. We have a big investment in the markets, we see a lot of potential there, and we want to see that it really is performing. We expect the economy to be picking up, and we want to make sure that we get our fair share of those markets there. They're good, strong markets, and it's important for us to make sure that the changes we've made are the right changes and we're getting the benefit of that. So during this quarter we're going to have a real focus on that to make sure it's really performing well.

And the new regional president, is he going to be focusing on, you know, honing in on the product and if so what product do you think that's going to be?

He's definitely focused on running the whole region. Obviously, that market is built on very affordable product, and we're not going to change that. We want to continue with that. But we also see opportunities to move up from what was a Crossmann product and more of a Beazer product in the major markets there. We will be doing that over time.

Okay. Great. Good quarter and thanks for your time.

Your next question comes from Tony Campbell.

Good morning. It's Tony Campbell. I have three questions, if I might.

Hi, Tony.

Good morning. Could you quantify, please, these warranty expenses in the Midwest, number one? Number two, can you give us some guidance with regard to land sales? It looks like you lost money in the quarter. And number three, what's your cancellation rate, if you would? I'm just going to put you back so we can both hear this.

Sure. I'll answer three first, then one, and we'll come back to the middle one. About 27%. No material change from prior quarters with the cancellation rate. On question one, we're not quantifying that single issue for a specific reason, Tony. We're in active discussions with some people on settling an issue and really signaling what our, quote unquote, allowance would be for that I don't think is in anybody's best interest. In aggregate that plus the selling and marketing cost is somewhere between 15 and 20 million dollars. And the profit, or actually the loss for the land sales, as I mentioned in the preceding question, is less than 200,000.

This quarter?

Yeah, for this quarter.

In profit?

Loss. dominimous loss of about 166,000.

And supplemental financial data at the bottom of this page, they had 7 million.

7 million with land sales and on that there was a small loss of --

The profit impact was 166,000.

7 million for the upcoming year. Okay. No. 15 to 20 million was the loss revenues in the Midwest because of this warranty issue.

The 15 to 20 million was through the quarter for warranty and the estimated selling costs for the branding program. The 166 was the profit impact of the land sales.

And if you look at it, I'm looking at the page you're on, the revenue is 7.7, and the cost of the revenue was 7.9. So it's a net wash as far as revenue and the cost of sales for the land sales.

Okay.

Okay?

I really am interested in your guidance for the rest of the year on the land issue.

We don't expect it to have any material impact on profit. Last year we enjoyed a few land sales or a bit of a windfall. It's not something we plan in our budget for. Opportunistically if we're trimming around the edges in certain land positions we may take them, but it's not something we put into our business plan. It historically hasn't been a material part of our earnings.

All right.

One of the things that we're doing there, Tony, and we've done for many years is some of these tracts are getting larger, and we may well buy a tract and then bring someone else in, sell part of it to another builder, and vice versa. We'll take an opportunity with another builder and we'll buy into a development they have. So sometimes you'll see that going through. Normally not a big P & L impact. It's really just a business -- a strategic move to enhance our land position within a market, and then limit the risk, if it's a very large tract, we may want to limit some of that risk and give part to another one or two builders, which we've done successfully in many of our markets. And I think we're going to see that going forward, but it's not really a big income line for us, not something we're budgeting for a big income line going forward.

Thank you.

Okay. Thanks very much.

Gale Alexander with Darfill Associates.

Good morning. Could you give us some color, how much your marketing costs could increase this year?

I don't think we're giving any guidance on that. As Jim said, we've made a fairly substantial expenditure through the branding initiative. We announced that, it started in October, we've done a lot of work on that, a lot of training of all of our team. We've also put some large national campaigns out there. Going into the selling season here. But as Jim said also, we expect to reap the benefit of that, particularly at a local level, as we go forward into the year. So you know, I think this is investing for the future here, investing in the brand where we expect to get the benefits through the latter part of this year and into future years.

Thank you. And nice quarter.

Thanks.

Once again, to ask your question, please press star 1 on your phone. One moment, please. Ivy Zelman with Credit Suisse First Boston.

Good morning. Actually Dennis McGill on behalf of ivy. Obviously the fourth quarter is the slowest selling quarter of the year. Give us directionally, if there's any markets that are either accelerating or decelerating as far as order trends may be.

For the rest of the year?

No, for the past -- for the fourth quarter, your fiscal first quarter.

Well, as we said in the comments, obviously, the west coast is very strong. In particular California and Las Vegas is very strong. We're actually very pleased to see Colorado coming around and posting some very good numbers. And we've been in that market now for about three years, and we entered it at a fairly soft time. But that let us reposition in the market, buy some new land, and as you know it takes a long time to come through there and that's now coming through. So we're seeing some good results there. We talked about Dallas being weak. Houston was on par with last year, but Dallas is a little weak. We're also pleased in Florida. We've got a good pickup in Florida. This is a market, again, we've been investing in over a number of years, and we're seeing a good return there. And coming into the southeast, as I said, part of the Carolinas was strong.

The one weak market there is probably still Charlotte. But again, we've got a big position there, and we're hopeful of some strong orders coming into this selling season. Mid-Atlantic, the orders were down in the December quarter, but that's a very strong market, and as I said, our backlog there is up 30%. And this is a market Jim talked a bit about judiciously releasing our land opportunities. With such a strong backlog there we want to manage the yield we're getting out of those land opportunities. Very hard to get entitlement there. We have a strong position in the mid-Atlantic. So we're very pleased with that. And really lastly is the Midwest where we want to see some performance. And pleased to say that in Ohio we have better numbers than a year ago.

So some of the initiatives we put in place in the major markets there, Cincinnati and Columbus, are coming through, and we need to see the other markets there picking up in this period. So we are getting some response to that in the markets that we made the initial changes, and now in this quarter we want to see the rest of those markets pick up, and we'll be focused on that.

I guess I'm just curious more than the quarter in aggregate, as we progress through the quarter if there are any particular markets that you saw decelerate or accelerate rather than specifically looking at the quarter versus a year ago.

I don't think I'd want to make any specific comments on that. I mean, I think that those that we noted were strong came across the quarter. I wouldn't tell you that there was any -- obviously, you know, there's a seasonal effect there as there is in every one of our quarters, but I wouldn't say it was anything market-specific that we could comment on.

Okay. Well, touching on your land investment expectations for this year, I think last quarter you mentioned you'd probably be up somewhere around 20%. Is that similar, hold true for the rest of the year?

Yeah, that continues to be true, Dennis.

Okay. And then just lastly, if you could, do you happen to have the price, average selling price by region? Is that something I could get for the quarter?

I don't think we've historically disclosed that. And back to Chelsey's question before, we do give you unit backlog by region but we don't give you dollar backlog for competitive reasons.

Well, it is in your?

I don't think so. Dollar backlog by region?

No, the average selling price. The revenues by --

We will get that for you.

Okay. Appreciate it, guys.

Hi, guys. It's Ivy. I jumped on. Can you hear me?

Yeah.

Okay. Great. Maybe you went over this, and I've been listening to the Q & A and I apologize if I'm going to ask a question that's already been discussed. But realizing you had a pretty impressive quarter with respect to your margin improvement with a lot of moving parts and your gross margin was up considerably as you give the guidance for '04 have you given detailed margin guidance?

No, we have not.

May I ask a question relating to margin guidance and just throw out your thoughts?

Sure.

Realizing that, you know, California and Las Vegas, I think everyone is in agreement, has been probably the biggest reason for margin's improvement for most builders. As the anniversary of the strength you enjoyed in your last fiscal year and assuming that you will have tough comparisons on the margin, do you expect that you can actually improve margins with, let's assuming those tough comps given your other markets and maybe repositioning whether Colorado is starting to come back or you're starting to see some of the other markets kick in? Is it safe to say that it's going to be pretty tough to get year-over-year improvement or do you feel that that's a clear goal that could be achieved?

Ivy, you may not have heard us previously. We reaffirmed our guidance for the year, and in that we said we expect that for the earnings growth this year 10% will be top line growth and 5% will be bottom line growth. And we reaffirmed that this morning. So you know, we still feel that there's pricing power there which is good and the market's responding to that, but also, we have a number of initiatives internally, which will help us get that margin improvement that we're looking for. So --

Is that coming on the gross margin level as opposed to just less dollars with expansion for SG&A?

It's a combination. I mean, some of it's efficiency. We're talking about efficiency. Some of it's in the gross margin line. Again, we reaffirmed that commitment this morning, and we think that's a realistic target for us. We have a longer-term goal for enhancing our margins. As you know, we've run this company very much in terms of return on capital, and we've looked for that asset turn, that fast asset turn to the slight expense of margins. It's harder to get that asset turn, we're looking really to improve our margins. Our long-term goal, we're working to do it. So we'll enjoy the pricing power that we can achieve out there. Even the point I made just now about the mid-Atlantic. Managing the yield there, making sure we don't release too early, we maximize our returns there, that's all part of enhancing our margins. It's not just going with the market, but we're consciously doing that. And then we've got the internal initiatives in terms of purchasing, in terms of, you know, plan releases that are efficient and getting us the best return. So a number of external factors to consider but a lot of internal factors to consider as we go through the year, and I think the goal we've set out to achieve we'll achieve.

and Ivy, on previous calls and as we've been now meeting with people, specifically to the point, most initiatives we have are focused on increasing the gross margin line. After we get through the initial spending on the branding campaign, you'll see sales and marketing abate a bit due to the one-time spending. But all the initiatives we have that albeit are coming off low basis we think there's tremendous upside on when you compare us to the peer group such as national accounts, process improvement, plan efficiency. We've gone through a pretty comprehensive review of the past few months of every plan we have in our library across the country and trying to get it down to the most efficient plans. That should all come through in the gross margin line prospectively. So we do think we have up side beyond just anniversary the price increases.

And realizing it's a combination as Ian just suggested with a lot of initiatives going on, are you therefore also assuming pricing power continues to get your 5% profit improvement?

We're assuming pricing stays flat in our forecast beyond what it is. So you've got the one-time benefit at what we realized this quarter. In terms of prospectively, we'd expect our average sales price both in backlog and report to come down, but you'd need markets like Midwest, like Charlotte, some of our big unit producers that have lower average sales price to come on as we'd expect.

So just to understand, so you're not assuming any price increases in markets where you've enjoyed pricing beyond what the current price is but yet you're still going to be able to improve margins without that price increase?

Not beyond what we realized already. That's right.

With respect to purchasing synergies, a lot of the builders -- maybe you guys are just behind with respect to where other builders claim they are, but many of them would tell you they're in the, you know, eighth or ninth inning and the incremental improvement in synergy and purchases of scale, most of which have been realized already and incrementally year over year it's going to be hard to move the needle because a lot of the easy money's been made there. It sounds like it's different for you?

I wouldn't say we're behind the times. With Crossmann we had an extra several thousand units that let us unlock kind of that next level of accounts that really we hadn't taken advantage of. When you look back at where we were a few years ago relative to what other guys were talking about, we probably started this a little bit later, but as Ian said, our business model was more focused on fast asset turns we didn't seek to get big synergies with Crossmann and with, you know, the unified brand, we're looking to get synergies from size, synergies from scale. We've put together a credible national accounts program, brought a couple guys in to manage it. So I wouldn't say we're late to the game, we didn't know it was important. We just didn't have the tools or the people to do it at the time. And now it's a much bigger focus. So we're in the second or third inning by choice, but I think that gives us a little more upside than some of the guys who have been at it a while.

And you may have already said this, but with respect to your current loan to value rate for your business overall, you've disclosed that in the past --

About 86%

And is that up or down from last quarter and year over year?

I think it's about flat, but can we come back to you on that in

Sure.

I think it's about flat, Ivy.

You also I'm sure made comments about this because you made it clear in your press release you're looking at a financial review of your Midwest region. Is there a probability that dependent on that review that you can actually exit the Midwest?

No, definitely.

Definitely no probability of that?

Indianapolis, the Ohio markets are big, deep markets. We should be succeeding there. You know, we're not here saying it's all wine and roses and the market's poor and we're doing great. We recognize we should be doing better but they're big deep markets. I think when the company did the acquisition two years ago we were articulate on it was a strategic acquisition. We're disappointed with the numbers on here yet, but we wouldn't exit those markets.

Okay. And did you talk about lot prices year over year? Are they up more than home prices, or are they up in, you know, pretty much on par with home price appreciation?

I think on par it varies by market but on average by par. If that's different we'll come back to you.

I apologize if I repeated questions.

That's thanks a lot.

Jack Kasprzak.

Is there only one of you or is somebody else going to come on and ask some questions?

There's only one of me. I stand alone. The communities you've opened recently, are any of those in brand new markets, and do you have any plans over the next year or so to open new communities in new markets, not acquisitions but sort of de novo entries?

Okay. So in terms of new markets that we've entered, the only one I would say that we're moving into is really Delaware as an extension of our Maryland operations. It's so difficult to, one, buy land, and two, get the entitlement in Maryland. We've moved over into Delaware, and we have a couple communities in Delaware, but they're being run out of Maryland. And we have very good land opportunities in Maryland. It's taking its time to get those developed, but when they come through they're going to be extremely strong for the company.

Ian, are those communities in Delaware near the coast?

They're in the central area at the moment, but we are certainly also looking down at the coast region. But I'd say that's the only area that we've moved into at this time and currently we're not looking at any other new markets at this time. Obviously, we're always open to ideas, and we're looking at that but currently everything else is focused in the markets we're in.

Okay. And how about -- thank you. And how about the inventory, your inventory of unsold homes? Has that changed?

It dropped a little bit in this quarter. Our unsold homes, I think, are at about .88 per community, finished homes per community. So it actually dropped a little bit. So there's absolutely, as you know, no inventory in the market. This is not an issue at this time.

Exactly. Thank you very much.

Thanks, Jack.

Margaret Whelan with USB.

Hi, it's Will again. I wanted to follow up with two questions. In terms of the marketing campaign, the branding campaign, when do you expect that to abate or start to abate?

William, I'd say that, you know, obviously, we're investing at this time. As we go through this year, what we'll be looking to do is the national costs that we've got, the national campaigns that we've got, we'll be looking to pull some of those dollars back out of the operations. And money that was being spent individually by markets, the various individual advertising agencies and the like, will come in and start funding the national campaign. So we see it abating by the end of this year. But we do want to spend on the brand, and we see a lot of opportunities to spend centrally on the brand and get the benefit out everywhere and then start reaping the rewards. So I'd say by the end of this year and as we go into next year.

And what's your expectations in terms of improving -- or seeing return on capital improve?

Well, you know, we'd like to be up there in the 20s, where we've historically been, and that's what we're shooting for. I mean, as we said earlier, return on capital's a function of asset turn on margin and the asset turns are getting harder as we have to take a longer position in terms of our land bank. So we're very focused at this time on increasing those margins and getting -- net still getting the return on capital. All of our employees are paid on that. That's the focus, the EVA focus hasn't changed there but we're now going to do it and we're going to drive that through margin improvement that we see, the opportunity.

Thank you.

Thanks, Will.

Stephen Kim with Smith Barney.

Thanks very much. Just wanted to suggest that I actually have not gotten the impression that the opportunities for cost savings are in the seventh or eighth inning. I got the sense that most of the builders feel that most of the opportunities are still fairly significant. And I agree that you guys probably have more than others, but I think that from what I can see and from what I hear you talk about it sounds like we're very early days for you guys on the cost-cutting approach. If I could, could I ask a question about how much emphasis you're putting on labor versus product at this time and what the opportunities you think are for both longer-term?

Steve, let me just comment in terms of a long-term view. We've had national accounts for a long time. As Jim said, it wasn't the absolute focus for us, and we've had them there. When we brought Jim in, about 16 17 months ago, that was to really focus on that, focus on the purchasing side. We saw the opportunities there. You know, and I would say, I don't know how to comment for other builders, but I think we have a lot of opportunities out there. But I wouldn't say we're that far behind the curve. We're with a second national company to sign up with Masco for their excellent installation program. We're the second builder to get into that program. And it's a really good program for us and for Masco. It's a really good program.

So Jim really spearheaded a lot of that. We put a big focus on that. When Jim stepped up to the CFO role, as he said, we've brought some other people in to continue that progress, and we see real opportunities there going forward. I'd say on the labor item, you know, one of the questions is should we be splitting labor and materials, should we be working as a turnkey package? You know, those are questions that we're addressing and working out, whether we should split that out. You know, I think one of the other things that we want to look at in terms of labor is our efficiency, our build cycle time things like that.

You know, obviously, if you're a subcontractor in the industry, your time is very important. So if we can make sure we're efficient, we've got our online scheduling throughout the whole company, if we can be efficient, we can be seen to be efficient by subcontractors so they don't waste their time when they come to our job site so they know exactly what's going on, then I think that's a labor improvement that we can drive through our business. So certainly, we're looking at that, and that's a key component for us.

You mentioned Masco and their installation program. From our conversation with Masco it sounds like they've set their sights on more than just insulation. Do you get the sense there's an opportunity to team up with them or somebody else to get involved in sort of packaging up installation contracts with more than just insulation but maybe fireplaces or --

Sure. And Steve, we've talked to them extensively about that, about cabinetry, about a host of things. And before, when you asked are we focused on the labor side as well, sure, there's the issue of are you doing -- breaking out labor and materials, doing full turnkey packages. But in terms of the labor, even when you're doing turnkey, a big component of that cost is the labor, and a big issue with respect to labor is do you have availability of the people, are you a preferred customer?

The idea of the deal with Masco is, you know, we, like the other national builder that Ian mentioned, are among their preferred customers that their contractors will make sure they go out and make sure you have labor capacity on the installation side. Similarly, we've recently structured a deal where we're narrowing down our cabinets. And I would mention it -- you can name three of them or four of them off the top of your head but we're taking 15 cabinet suppliers who used to supply to us companywide, and we're trying to bring that down to four or five. And Masco would be one.

We went after that category for one reason in particular. It's baying dollar item where it's usually billed directly from the manufacturer, who also does the installation. So you're tacking a big category where you're guaranteeing yourself capacity and you're dealing direct rather than distribution. And when you deal through distribution typically you're going to the subcontractor who may be going to a Ferguson or a district, who may be going to the manufacturer. So you're kind of at the hostage of really going through your takeoffs or knowing what your turnkey compares to other guys as opposed to seeing exactly what the cost is with the guy you're negotiating. In the case of cabinets and this insulation we're negotiating as a principal with somebody, and we're not at the mercy of the best rebate and hoping the direct cost is in line with that.

So there is a lot of rationale and there is a lot of -- we believe that that deal with Masco, similar deals like that have a lot of legs left in them.

Great. And if I could just make one last comment, you indicated that you're not -- you're basically in your forecast, you don't bake in any assumption for price increases going forward even for markets that have seen pricing strength. That's pretty much in line with what all the other builders do as well, and it's one of the reasons why we think that the guidance for all the builders is just extremely conservative. Can I ask you a question? Companywide when is the last time that you have not -- that you saw your prices go down year over year?

Steve --

Aside from --

I've only been here 12 months. I'll let Ian answer. They haven't gone down in 12 months.

We haven't seen prices go down. As you know, Steve, prices don't often go down. They're very sticky. They go up quite fast, but they don't come down as fast. The general market will set -- tend to set a floor to that. And honestly, we haven't seen prices come down other than, as Jim just mentioned, mix shift. If we're trying to shift our mix or trying to take features out of a home and put them in the design center, that's the only time we might offer a plan at a different price. But it's not a weakness in any of the markets.

Okay. Thanks a lot.

Jack Kasprzak.

Two quick questions. Number one, would you consider a stock split? Has the board discussed that? And number two, as far as stock buyback, do you have anything -- do you have an authorization in place? Could you refresh our memory on what might be remaining and would you consider that at this point? Or did you buy back any stock recently?

Okay. Let's start with that one. We do have an authorization at the moment for a million shares which was put in last summer, and I think from memory we've bought about 128,000 shares to date in that portion. So obviously, we and the board look at this over time and look at the opportunities we have out there. Jim talked about the opportunities we have to enhance our land bank going forward, to grow our business. We look at that, we compare that against the opportunities for a share buyback. And also we instigated a dividend last year. So we'll be looking at that with the board as well. In terms of a stock split, we haven't made a commitment on that at this time. That is something we'll look at in the future going forward with our board.

Okay. Thanks.

Thanks, Jack.

The final question that we will take for today's call is Mike Kinder with Citigroup.

Most of my questions have been answered. One follow-up on the land supply. If you divide it by LTM closings it's up over five years. What is it in terms of -- number of years in terms of how long you expect it to be built out? Obviously, you've got some acceleration in the -- beyond the closings, I assume baked into your forecast for the next couple of years.

That's a great way to answer what our closing's going to be in future years, which is basically, mike, we don't give a forecast on that. Obviously, internally we're looking at how we can use our land -- where we see growth in the markets. But at this stage I think it's a little early to give that kind of guidance. What we did say is we were looking for 10% of our earnings growth this year to be top line growth. Some of that's going to be pricing power, and some of that's going to be accelerated number of units. But you know, I think if you look at where our land bank is today, as you say, over five years throughout the country, we think that we're in a very good position and we've got great opportunities there as we go through 2004 into the future.

I guess to, you know, ask -- looking at it from a different slant, should we expect it to remain kind of at a five-year-type level for the -- you know, for the near term?

I think that's a reasonable assumption. I think we'll look at it market by market, but I think that's probably a reasonable assumption at this time.

Okay. Great. Thank you.

Thanks, Mike. Do we have any more calls?

At this time there are no further questions.

Thanks very much. Well, I'd just like to take the opportunity to thank everybody for joining us today and the recording of this call with the slide presentation will be available at around 300 p.m. today in the investor relations section of our Website, Beazer.com. So thanks very much for listening.