2nd UPDATE: Beazer Promotes CFO As CEO McCarthy Exits

In a surprise move, builder Beazer Homes USA Inc. (BZH) said Chief Executive Ian J. McCarthy will step down and be replaced by Allan Merrill, the current chief financial officer.

The announcement ends McCarthy's troubled tenure that included a federal probe into its lending practices and a settlement with the Securities and Exchange Commission over accounting issues.

Merrill, who has been CFO for four years, will also serve as president and be on the board, the company said in a statement. Robert Salomon, who joined Beazer in 2008 as its chief accounting officer, replaces Merrill.

Messrs. McCarthy, who has worked with Beazer since its 1994 IPO, and Merrill weren't available for comment.

David Goldberg, a builder analyst with UBS, said the change is a good thing. Merrill has helped improve the company's financial flexibility, allowing management to focus on returning to profitability, and the builder has shown greater operating discipline. Beazer's "underperformance relative to peers will reverse over time," he wrote in a client note.

Like most builders, Beazer has struggled to sell homes and earn a profit during the worst housing downturn in generations. To cut costs and stay afloat, companies have slashed employee counts, exited underperforming markets and simplified building plans. Earlier this year, Beazer said it would begin renting foreclosed homes in hard-hit Phoenix, a move that seemed to acknowledge that more Americans opting to rent homes instead of buy them.

But the Atlanta-based company's issues go beyond the housing crash. McCarthy, 57 years old as of December's proxy filing, led the builder during several embarrassing incidents that grabbed headlines and bruised investors' confidence in the company.

In March, McCarthy agreed to repay $6.5 million and return tens of thousands of shares of company stock as part of a settlement with the SEC.

In 2009, the company agreed to pay $53 million to the federal government and homeowners after a joint federal probe found that the builder had given government-backed loans to borrowers who couldn't afford them.

A year earlier, Beazer settled civil allegations brought by the SEC over the company's accounting practices without admitting any wrongdoing. Beazer understated earnings by a total of about $63 million in fiscal years 2000 to 2005 and overstated them by $47 million between 2006 and early 2007.

Another corporate misstep involved the 2002 acquisition of Crossman Communities Inc. for about $500 million in cash and stock, a deal that boosted its presence in the south and Midwest. Beazer simply overpaid, said Alex Barron, founder of the Housing Research Center, an independent sell-side firm.

It's time for a change, he said, adding that "new leadership could take the company in a new direction."

The company thanked McCarthy and wished him success in the future.

"Over many years, Ian McCarthy has ably guided the company to its current position as one of the ten largest home builders in the United States," Chairman Brian Beazer said in the release. "During this time, the home building industry and the company have experienced many complex issues which Ian has dealt with to the benefit of the company."

Shares of Beazer recently traded down 1.9% at $3.09, making it the sector's largest decliner.

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com

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