HOVNANIAN SUFFERS $117.9M Q3 LOSS
By Janet Frankston Lorin
Associated Press
Tuesday, December 19, 2006
Home builder Hovnanian Enterprises reported late yesterday it swung
to a loss in fourth quarter, beset by a downturn in the housing market
that has also plagued competitors.
After paying preferred stock dividends, the company reported a
quarterly loss of $117.9 million, or $1.88 per share for the quarter
that ended Oct. 31. This compared with a profit $165.4 million,
or $2.53 per share, for the same period a year ago.
The quarter included $315 million in charges related to inventory
impairments and land option write- offs. Excluding these, the company
recorded income of $198.4 million, or $3.43 per share.
Analysts surveyed by Thomson Financial had forecast quarterly
earnings of $1.05 per share on $1.7 billion in revenue. Hovnanian
warned investors last month that it would have a net loss in its
fourth quarter.
The Red Bank-based company, which builds luxury homes in 17 states
including California, Florida, New Jersey and New York, is the latest
builder to be slammed by the downturn in the housing market.
President and Chief Executive Ara Hovnanian said he was disappointed
in the 2006 numbers, even as the company cut pricing and offered
incentives to improve affordability.
"We did not anticipate sudden ness or magnitude of the fall in
pricing that occurred this year in many of our communities," he said
in a statement. "Our profitability and the pace of new home sales
in our markets continues to be adver sely impacted by high contract
cancellation rates, increases in the number of resale listings and
increases in the number of new homes available for sale."
Revenues for the quarter dropped 1.5 percent, to $1.75 billion, from
$1.77 billion in the prior- year period. Costs rose 28.5 percent,
to $1.93 billion, from $1.5 billion a year earlier.
Shares fell 16 cents, or 0.45 percent, to $35.73 on the New York
Stock Exchange. In after-hours trading, the stock fell $1.25, to $34.
Over the past year, the stock has traded from $24.79 to $54.59.
Alex Barron, who follows home builders for JMP Securities, said the
industry will get worse before it gets better. He said with so much
inventory, builders like Hovnanian must cut their prices to compete.
"Until those inventory levels come more in line with historical levels,
it’s going to be very difficult for builders to show an improvement,"
he said. While Hovnanian posted a large write-off, he said the company
is being more realistic than other large home builders "about how
deep this current downturn is."
Excluding unconsolidated joint ventures, Hovnanian delivered 17,940
homes with an aggregate sales value of $5.9 billion in fiscal 2006,
compared with deliveries of 16,274 homes with aggregate sales value
of $5.2 billion the previous year.
For the fiscal year, the company recorded net income of $138.9 million,
or $2.14 per share, versus $469.1 million, or $7.16 per share, the year
before. Excluding $336 million in charges for inventory impair ment and
land option write-offs, in come was $753.2 million, or $4.53 per share.
Analysts surveyed by Thomson Financial had forecast full-year profit
of $4.97 per share.
Other home builders also have fared poorly of late.
Toll Bros.’ fourth-quarter earnings fell 44 percent, but the company
said it sees some signs of stabilization in the slumping housing
sector and raised its forecast for first-quarter home deliveries.
Executives of several of the largest home builders, including Ara
Hovnanian, predicted this month at an industry conference that the
housing market would improve in 2007 because low prices would bring
buyers back to the market.
The company also offered guidance for 2007 earnings between $1.50
and $2 per share, and first- quarter earnings between 5 cents and 10
cents per share. Analysts predict income of $2.71 per share for 2007
and 46 cents for the first quarter.