RED BANK, N.J., (Hanley-Wood News Service) - Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported its fourth consecutive year of record revenues and earnings and the highest revenues and profits in its 42-year history for the fiscal year ended October 31, 2001. Net income nearly doubled to $63.7 million or $2.29 per fully diluted share for fiscal 2001, compared to $33.2 million or $1.50 per fully diluted share for fiscal 2000. These earnings are net of all charges, including one-time pretax restructuring charges of $3.25 million resulting from Hovnanian's merger with Washington Homes, Inc, which closed in the first quarter of fiscal 2001. On an operating basis, prior to these charges, the Company earned $2.36 per fully diluted share in fiscal 2001, ahead of the most recent consensus of analysts' estimates of $2.31 per share in operating earnings.
Total revenues grew 53.4% to $1.74 billion compared to $1.14 billion in fiscal 2000, as home deliveries increased 55.5% to 6,791 homes. Net contracts climbed to 6,722 homes valued at $1.62 billion, an increase of 48.0% in the number of homes from last year's results. Contract backlog as of October 31, 2001 was 3,033 homes with a sales value of $773.1 million, up 44.7% from last year's backlog of 2,096 homes.
The Company's pretax margin rose 150 basis points to 6.1% in fiscal 2001 from 4.6% in the prior year. Total selling, general and administrative expense, including corporate expense, as a percentage of total revenues fell to 10.6% in fiscal 2001, a significant improvement from 12.2% last year. Earnings before taxes from Financial Services improved to $10.0 million in fiscal 2001 from a loss of $.4 million in the prior year.
Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal 2001 were $175.1 million, a 78.3% increase from fiscal 2000. The Company had an interest coverage ratio of 3.7 times for the full fiscal year. The Company's debt-to-equity ratio was 1.06 to 1.0 at fiscal yearend, down significantly from a ratio of 1.51 to 1.0 at the end of fiscal 2000. Stockholders' equity grew to $375.6 million, or $13.48 a share, as of October 31, 2001, a 42.6% increase from $263.4 million at the end of fiscal 2000.
Fourth Quarter Performance
For the fourth quarter ended October 31, 2001, the Company reported net income of $21.7 million, a 19.4% increase from $18.2 million achieved in fiscal 2000's fourth quarter. Revenues for fiscal 2001's fourth quarter were $537.2 million compared to 2000's fourth quarter revenues of $352.5 million.
Despite a slowing economy and the tragic events of September 11th, sales continued to show strength through the end of the fiscal year, with fourth quarter net contracts up 21.6% year-to-year, from 1,116 homes to 1,357 homes. Deliveries in 2001's final quarter were 1,996 homes with a sales value of $519.7 million compared to 1,290 homes or $342.3 million in 2000. Homebuilding gross margin, excluding land sales, increased to 20.9% in the fourth quarter of fiscal 2001, a sequential increase of 90 basis points from 20.0% in the third quarter of 2001.
Comments from Management
''I am extremely pleased with our strong financial performance in fiscal 2001, which reflects the success of our market dominance strategy, our attractive land position and our sharp focus on improving the efficiency of our operations,'' said Ara K. Hovnanian, President and Chief Executive Officer of the Company. ''The merger with Washington Homes enhanced our geographic diversification and strengthened our leadership position in key markets. Today, we are the number one homebuilder in New Jersey and North Carolina, and the number two homebuilder in Washington D.C. On a combined basis, our Company has outperformed our own expectations this year in nearly every category, which is partially due to the successful integration of Washington Homes,'' he added. ''The integration has proceeded faster and more smoothly than we anticipated, enabling Hovnanian to realize cost savings and operating efficiencies above our predictions. Each of our core markets is contributing meaningful earnings and is achieving a return on investment above our forecast at the time of the merger. As a result, we achieved a return on average equity in excess of 19% in fiscal 2001 and a return on capital of 13%, indicating that we are creating significant value for our shareholders. I am indebted to all of our Associates and trade partners that have worked hard to make this happen and to achieve this outstanding performance,'' Mr. Hovnanian continued. Hovnanian's merger with Washington Homes, Inc., closed on January 23rd, 2001.
''In spite of the additional debt we incurred with the merger, our strong performance has put us on track to achieve our target of a 1.1 to 1.0 average ratio of debt-to-equity,'' said J. Larry Sorsby, Executive Vice President and Chief Financial Officer. ''In fact, the ratio fell to 1.06 to 1.0 at fiscal yearend. Although we expect this ratio to tick up modestly during fiscal 2002 due to normal seasonal inventory buildup and a large number of additional community openings throughout the year, we expect the average ratio of debt- to-equity in fiscal 2002 to decline from this year's average. The ratio of total debt to EBITDA at fiscal yearend was only 2.3 to 1.0,'' he added. ''With $0 outstanding on our $440 million unsecured revolving credit facility as of October 31st, we have ample liquidity to fund our continued growth.''
''We are continuing to see healthy demand in all of our markets,'' said Geaton A. DeCesaris, Jr., Chief Operating Officer and President of Homebuilding Operations. ''Although sales activity is slower than the red-hot pace we were experiencing in the Spring sales season, average weekly sales since the tragic events of September 11th have increased compared to the 5-week period just prior to September 11th. And sales have gained momentum with each passing week,'' he added. ''In addition to low mortgage rates, we believe that the fundamental shortfall of available lots for new housing in many of our markets continues to drive demand. Development of new homes is subject to increasing regulation, which limits the supply of available lots,'' he added. ''This is particularly true in our core markets in the Northeast, Southern California and, increasingly, Northern Virginia and Maryland,'' continued Mr. DeCesaris. ''At the same time, household formation continues to be strong, caused in part by higher immigration and the aging baby boomers that have now reached their peak years for homeownership. As a result of the supply/demand imbalance, we have been able to continue selectively raising prices and improving our margins, despite the economic slowdown this year,'' he concluded.
''The Joint Center for Housing Studies at Harvard has just issued a revised forecast for an even greater housing need in the next decade than the demand created in the 1990's, which confirms our optimism about the years ahead,'' said Mr. Hovnanian. ''As we enter fiscal 2002, we remain focused on driving growth and increasing our return on investment. We currently plan to have approximately 20 more communities open at fiscal yearend 2002 than the 172 communities in which we were actively selling homes at the end of fiscal 2001. We have a strong backlog of orders for delivery in fiscal 2002, especially in our Northeast and Washington D.C. markets, where we have already sold more than 70% of the homes planned for delivery during this fiscal year.
''To date, we have not seen a significant adverse affect on our business from the economic slowdown. Provided that there is not a further major decline in economic conditions, we are confident that we will exceed this year's earnings per share of $2.29 in fiscal 2002. We will achieve this increase in profitability despite an $8 million, or $0.16 per share, increase in insurance costs that we are absorbing in fiscal 2002. We also expect to achieve 10-15% growth in earnings per share in each of the two subsequent years, even if there is a modest slowdown in home deliveries per community from the current sales pace,'' Mr. Hovnanian said. ''Our ability to forecast several years out is enhanced by the long-term nature of our land position. The substantial majority of home deliveries in the Company's growth plan for the next three years will come from communities that we currently own or control under an option contract. Hovnanian has one of the strongest land positions in the home building industry, with about a five-year total supply of unsold lots. This reduces our exposure to rising lot prices or availability. Yet only about 30% of these lots are owned, with the balance held under option contracts, enabling Hovnanian to reduce risk and maintain its balance sheet flexibility and liquidity,'' he said.
''We expect our pattern of quarterly earnings in fiscal 2002 to look very similar to 2001,'' said Mr. Sorsby, ''with some back-loading into the fourth quarter due to the significant number of new communities slated to open throughout the year. However, we anticipate maintaining a smoother quarterly pattern of deliveries and earnings than occurred in prior years,'' he said.