The quarterly earnings results for Beazer Homes are, to put it mildly, forgettable. Or, at least, Beazer’s senior leadership hopes that’s the case.
A net quarterly loss, a highly compressed gross profit margin that fell short of expectations, and a frustratingly low sales pace all cause concern.
Beazer reported a Q1 net loss of $32.6 million, a red flag for Wall Street analysts and investors, which led to a roughly 11% drop in Beazer Homes’ (BZH) stock by the session close on Friday.
At the start of Beazer’s Q1 2026 earnings call held on Thursday evening, Chairman, President and CEO Allan Merrill acknowledged the realities of the current homebuilding market, calling it a “stubbornly soft demand environment.”
There could, however, be reasons to be cautiously optimistic about where demand is headed. According to Merrill, an uptick in traffic and buyer engagement kicked in around mid-December. January’s sales pace was also in line with the prior year after eight quarters of year-over-year pace compression, and built-to-order sales marginally improved in last month’s post-quarterly timeframe.
Executives for M/I Homes, in an earnings call last week, similarly noted that demand showed signs of a bounce from the bottom, even on a seasonally adjusted basis.
Still, this cautious optimism doesn’t overshadow Beazer’s worse-than-expected quarterly results. For the Atlanta-based builder, the road back to profitability is paved with a higher-margin product mix, a shift already underway.
A deeper dive into Beazer earnings
In addition to a net loss of more than $30 million, adjusted EBITDA was a loss of $11.2 million, compared with adjusted EBITDA of $23 million a year prior. Compared with a year ago, homebuilding revenue declined 21.9%, net new orders fell 18.0% and backlog dollar value was down 30%.
Beazer’s gross profit margin was 14.0%, down from 18.2% a year ago. However, excluding a one-time litigation-related charge, the quarterly gross profit margin would have been 15.8%, in line with expectations.
According to Merrill, sales pace was up in two or three divisions, but the rest of the builder’s divisions posted either flat sales or declines. Company-wide, sales per community per month declined year over year from 1.9 to 1.5, resulting in sales almost one-home-per-community-per-month short of expectations.
While Beazer doesn’t disclose specific incentive data, Senior VP, CFO and Treasurer David Goldberg acknowledged that incentives were up, which hurt margins.
Securing margins with a more profitable product mix
Last quarter, Beazer Homes executives discussed plans to shift from affordable, entry-level communities to higher-priced product offerings. The share of Beazer’s closings from home offerings priced below $500,000 is expected to fall by double digits by the end of fiscal year 2026.
Incentives in lower-priced new-home communities typically range three to five points higher than those in more premium-priced communities, as entry-level buyers are more sensitive to higher mortgage rates and affordability constraints.
This planned mix shift is already in motion, resulting in higher margins for new communities. Beazer is also building new homes more efficiently, reducing labor and material costs by more than $10,000 per home and cutting the average start-to-completion construction cycle time by two weeks.
The changes are expected to boost Beazer’s operational and financial performance in the quarters ahead. Beazer executives indicated that margins will increase by 300 basis points by the end of fiscal year 2026.
“These newer communities, which we have defined as those that started selling in or after April 2025, were just over 10% of first quarter revenue, but are projected to account for about 50% of fourth quarter revenue. ASPs and margins on sales in these communities are both substantially above existing communities,” Merrill said.
The average sales price for homes in backlog is 5.0% higher than a year ago, reflecting Beazer’s shift toward higher-priced products.
“That’s giving you a flavor for what is going to happen to ASP in the back half of the year,” Goldberg said, explaining that the higher-priced, move-up communities require fewer incentives.
Spec homes still account for 70% of closings, but there is some evidence that demand for built-to-order (BTO) units may be improving slightly, as spec homes were nearly 75% of closings in the previous quarter.
“I think it has to do with some of our newer communities that are drawing a lot of attention. I also think the fact that inventory is coming down is creating some buyers who are willing to wait, because not everything is about ‘get me the house immediately’. I think it’s probably a combination of those two factors more than anything else,” Goldberg said when explaining why BTO orders are improving slightly.
For Beazer, BTO homes provide margins about 400 to 500 basis points higher than spec homes, meaning that any shift toward a less spec-heavy product mix will improve margins.
Betting on energy-efficient homes
Last year, Beazer Homes announced the “Enjoy the Great Indoors” campaign, which emphasizes the builder’s commitment to energy-efficient homes that deliver long-term savings on utility bills for homeowners.
“From day one, our solar-included homes reduce monthly utility bills to a little more than a basic service charge,” Merril boasted.
Beazer introduced solar communities in late 2023 and has since built them in Las Vegas, Georgia and Phoenix. The company will soon deliver a big solar community in South Carolina, expanding the product’s geographic footprint.
According to Merrill, communities with a solar product have higher margins than the average, although he declined to specify the magnitude of the difference. A higher margin is a big reason solar communities are expected to make up a growing share, about 20%, of Beazer’s product mix by the end of 2026.
“Working with our partners, we’ve been able to reduce installation costs for more than $4 per kilowatt hour to less than $2, and we know we can drive it even lower. Results thus far are promising. Homebuyer enthusiasm has been strong, and margins in our fully solar communities are among the very best in the company. This is exactly the kind of offering that separates us from other builders in meeting the affordability challenge,” Merrill said.
According to Merrill, Beazer has seen strong traction with purpose-built solar communities, which is a major reason demand and traffic have been on the upswing since mid-December.
The upshot
Beazer is not alone in its underwhelming financial performance. Hovnanian Enterprises similarly reported a net loss last quarter. Still, Beazer’s results underscore the urgency for operational efficiency and strategic clarity in this moment.
The shift that Beazer executives highlighted reflects a difficult homebuilding environment, especially among entry-level buyers. In the near term, builders specializing in the entry-level segment may need to choose between accepting lower margins and shifting to a higher-margin product mix, as Beazer did.
Beazer’s ability to deliver zero-energy-ready homes at a cost-efficient, margin-padded price point could also serve as a blueprint for other builders as they adopt more innovative building practices.
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