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Loss Wider Than Forecast
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|Hovnanian Loss Wider
Source: BIG BUILDER News
Publication date: March 1, 2011
By BB Staff
Hovnanian Enterprises, Red Bank, N.J. (NYSE:HOV) late Tuesday reported a wider-than-expected loss for its fiscal first quarter ended Jan. 31 on higher impairment charges and double digit declines in both closings and new orders.
The company lost $64.1 million, ($0.82) per share, compared with net income of $236.2 million, or $2.97 per share, in last year's fiscal first quarter.The loss included $13.5 million in impairments, up from $5 million in the prior-year quarter. The company also took a $22 million charge to earnings related to its tax asset valuation allowance, without which the loss would have been 54 cents a share.
Analysts were expecting a loss of 61 cents a share. Shares of Hovnanian closed down 4.6% at $3.89 and were inactive in after-hours trading.
Revenues dropped 21% from last year's quarter to $252.6 million as deliveries fell 22.5% to 845 homes and the average price declined 1.5% to $279,155. Total closing dollars dropped 23.7% to $235.9 million.
New orders were down 13.2% to 792, new-order dollars dropped 10.4% to $225.5 million and the new order average price rose 3.2% to $284,707. The cancellation rate rose to 22% from 21% in the prior-year period. Hovnanian ended the quarter with 188 active selling communities, excluding unconsolidated joint ventures, up from 179 a year earlier.
Backlog at quarter's end was down 24.9% to 1,196. Backlog value fell 27.3% to $367.6 million. The average backlog price fell 3.1% to $307,339.
For unconsolidated joint ventures, closings rose 23.7% to 47, closing revenue rose 7.8% to $22.5 million and the average price of closings fell 12.8% to $479,447. New orders rose 18.4%, new-order dollars were flat at$23.5 million and the average new-order price fell 15.6% to $406,828. JV backlog was down 8.2% to 156 homes; backlog value fell 22.9% to $68.1 million.
Home-building gross margin percentage, before interest expense included in cost of sales, increased to 16.9%, up from 16.0% in the same quarter a year earlier. SG&A was down to $40.2 million from $43.1 million.
Cash flow turned to a negative $47.8 million as the company spent approximately $75 million on approximately 1,300 lots and to develop land across the Company. At quarter's end, the company had 30,864 lots, 12,153 under option and 18,711. Approximately 550 of the lots purchased were within 60 newly identified communities and approximately 1,850 lots were put under option in 38 newly identified communities.
The company ended the quarter with $311 million in case and $105.6 million in restricted cash. It was carrying $1.65 billion in long-term debt on its balance sheet.
"While we were encouraged by the typical seasonal increase in both traffic and net contracts during January, it is still too early to tell how this spring selling season will compare to last spring's net contracts when the federal homebuyer tax credit was still available," said Ara K. Hovnanian, chairman, president and CEO.
Michael Rehaut, home-building analyst at J.P. Morgan, said in a research note that the earnings were "moderately below" his estimates, adding, "With orders moderately below our estimate, but other key items roughtly in-line, we believe these results are a net neutral."
Hovnanian Enterprises Inc. said Friday its fiscal second-quarter loss will be wider than previously forecast after selling fewer homes amid still-tepid demand in the housing market.
Hovnanian, which builds upscale houses in major markets like Florida, Arizona and California, expects to report a net loss of 45 cents to 50 cents per share. The preliminary forecast includes a projected charge of $15 million to $20 million to forfeit land deposits and write down the value of assets it no longer can develop for a profit.
Excluding the charges, Hovnanian sees the loss at 30 cents per share, wider than its April forecast of a loss of 5 cents to 20 cents per share. Analysts are looking for a loss of 16 cents per share, according to Thomson Financial.
Hovnanian delivered 3,196 homes in the quarter ended April 30, down 30 percent from the year-ago period. Net contracts, which remove cancellations from total orders, fell 21 percent to 3,116. The cancellation rate was 32 percent, down 4 percentage points from the first quarter.
"These contract results reflect a continued challenging operating environment in most of the company's markets," Hovnanian said in a statement.
The once-booming housing sector is still struggling to find its footing amid falling prices in most major markets, as buyers are reluctant to invest in a property that may lose value. Hovnanian, like many of its competitors, offer discounts to move inventory built during the sector's five-year bull run.
The company also blamed trouble in the market for loans to people with poor credit histories for depressing demand. "The adverse publicity surrounding the sub-prime market has further damaged home buyers' psychology," Hovnanian said.
The Red Bank, N.J., company plans to report earnings May 31.
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