Hovnanian Enterprises’ loss grew in fiscal 2Q
Tuesday, June 7, 2011
LOS ANGELES (AP) — Hovnanian Enterprises Inc. said Tuesday that its loss more than doubled in its fiscal second quarter, as the homebuilder sold fewer homes and booked higher land-related charges.
A lackluster spring home-selling season led to a 17 percent drop in new home orders versus a year ago, when federal tax credits helped spur sales industry wide. Home deliveries sank 19 percent.
Even factoring in the absence of that incentive, Hovnanian’s sales trends in the quarter were worse than anticipated.
Ara Hovnanian, the builder’s chairman, president and chief executive, dubbed the spring home-selling season a disappointment, but noted that net contracts for new homes surged 28 percent in May from a year earlier.
The homebuyer tax credits expired in April of last year, and sales tanked the following month, which makes sales figures for May 2010 and much of the rest of last year far easier to beat.
Perhaps with this in mind, Hovnanian said he sees the company reporting improved results in the second half of the fiscal year.
“Based on our backlog, current sales paces and prices and new community openings, we believe our loss will be less in the next two quarters and that cash flow will improve,” Hovnanian said.
Homebuilders had hopes for a pickup in home sales this spring, but many of the largest builders have reported sharp annual declines in home orders even amid a seasonal increase in traffic by prospective buyers. Many buyers remain deterred by high unemployment, strict lending standards and concerns that home values will drop further.
U.S. sales of new homes rose 7.3 percent in April to a seasonally adjusted annual rate of 323,000. It was the second consecutive monthly increase. But the sales pace is still well below the 700,000 new home sales a month economists consider healthy.
For the February to April quarter, Hovnanian reported net contracts for new homes, including joint ventures, fell to 1,166 homes. Completed home sales, also known as home deliveries, totaled 967 homes.
Analysts’ consensus forecast called for Hovnanian to report just a 3.3 percent decline in new home orders and a 17 percent drop in delivered homes, according to FactSet.
The rate at which buyers walked away from contracts for new homes rose to 20 percent from 17 percent in the prior-year quarter.
As of April 30, the builder’s backlog, including joint ventures, stood at 1,551 homes, down 21 percent from a year earlier. The sales value of the backlog was $513.3 million, down 17 percent.
Homebuilders are a bellwether for the housing market and the economy. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, by some estimates.
Hovnanian, which is based in Red Bank, N.J., has operations in 18 states and is the seventh-largest homebuilder in the U.S., based on homes delivered last year.
The company said it lost $72.7 million, or 69 cents a share, for the three months ended April 30. That compares with a loss of $28.6 million, or 36 cents a share, in the same period last year.
The builder absorbed $16.9 million in pretax, land-related charges for the quarter, up from $1.2 million a year earlier.
Revenue tumbled to $255.1 million from $318.6 million the year before.
Analysts surveyed by FactSet expected a loss of 53 cents a share on revenue of about $265 million.
Shares fell 13 cents, or 5.6 percent, to $2.21 in after-hours trading. The stock added a penny to $2.34 during the regular session.
At the quarter’s close, Hovnanian had 206 communities open for sale, including joint ventures, up from 188 a year earlier.
Hovnanian continued to spend money on land during the quarter, shelling out $125 million to buy 1,440 lots and develop land.
While other builders also have been buying land, taking advantage of lower prices, Hovnanian’s spending has raised red flags among some analysts.
In April, Fitch Ratings said that if the builder’s cash reserves fall below $275 million due to land purchases, it may not have enough cushion should the housing market weakness continue.
Hovnanian spent $287.9 million buying land in fiscal 2010 and spent $75 million on land and development in its fiscal first quarter this year.
Where it not for a hefty tax refund, Hovnanian would have not ended the 2010 fiscal year with positive cash flow.
Hovnanian said it ended the latest quarter with $415.2 million in cash, and its CEO played down concerns over its financial health.
“We remain confident that we have the liquidity to weather the remainder of this downturn, and will continue to position ourselves in preparation for the inevitable housing recovery,” he said.
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