More than the expiration of the federal home buyer tax credit was to blame for Hovnanian Enterprises' 37% drop in third-quarter orders, CEO Ira Hovnanian said during the company's third-quarter conference call Wednesday.
He pinned the decline on economic events ranging from the meltdown of Greece's economy to the blowup of the Deep Horizon oil well in the Gulf of Mexico. "The bottom line is that a barrage of bad news had the U.S. consumer on his heels," Hovnanian told analysts.
As for the company's $72.9 million loss (-$0.92 a common share), a large part of that could be blamed on slower sales in several communities that triggered a large share of the $49 million in land charges.
"76% of (the charges) were in five communities in fringe locations, four in Southern California and one in Southern New Jersey," CFO Larry Sorsby said. All were missing the sales-pace goal, so net prices were lowered to move homes faster, he said.
The loss compares with a loss of $168.9 million (-$2.16 per common share) for last year's fiscal third quarter.
Hovnanian executives repeated what they have said for several quarters now: Metrics will improve as the company adds more communities comprised of less-expensive land to its portfolio.
"We do not need to see price appreciation to see further improvement in our gross margin, just a shift in mix in lots that we own," Sorsby said. "While this will not happen overnight, we have started down the road to making this happen."
The company reported that 29% of the lots the company controls now are expected to return 25% or more un-levered return on investment.
Sorsby reported that the company has decided against making a $40 million investment to buy 10% of a newly formed company named "NERCO" that would buy, develop land in a banking arrangement for home builders. Hovnanian had announced the potential deal in an 8-K filing with the U.S. Securities and Exchange Commission last March.
"In lieu of an investment in Newco, we are focusing our efforts on joint ventures, a strategy that has worked well for us historically," Sorsby said.
Under questioning from analysts about the decision, Hovnanian said, "Basically the deal terms in the end just didn't seem attractive enough compared to our traditional joint ventures. We just figured it wouldn't be worth the effort."
Hovnanian's revenue for the quarter was essentially flat with last year's quarter, $380.6 million versus $387.1 million in 2009. So were Closings at 1,316 versus 1,322. Closing revenue was up 0.3% to $368.1 million as the average price rose 0.7% to $279,694. Unconsolidated joint ventures added 80 closings worth $34.6 million with the average price up 2.2% to $288,457
Hovnanian said sales continued to improve in August from June and July. "We are hopeful that our sales trends continue to improve in September and October," he said.