Hovnanian Enterprises, Inc. (NYSE: HOV) preliminary operating results for its fiscal second quarter ended April 30 reported a 21% drop in home deliveries to 2,494 and a drop of 29% in new contracts to 2,226, both compared to the same quarter a year ago, the company said May 5.

Hovnanaian also said it expects to report pre-tax charges of between $225 million and $275 million for the quarter, citing "continued deterioration in sales pace, pricing and gross margin" since the end of the company's first fiscal quarter.

Cancellation rates for the second quarter declined to 29% of gross contracts from 38% for the first quarter of 2008 and 32% for the second quarter of 2007. Contract backlog, as of April 30, 2008, excluding unconsolidated joint ventures, was 3,577 homes, a decrease of 54% from the same quarter a year ago. Excluding backlog from the Company's Fort Myers-Cape Coral operations in both periods, backlog decreased 41%.

Hovnanian said it was cash-flow positive during the quarter and was raising its guidance regarding cash flow for the full fiscal year to more than $300 million from the previously announced $100 million-plus. It also said it reduced net debt by approximately $30 million during the quarter.

David Goldberg, home building analyst at UBS, wrote in a research note to investors, "We believe the improvement in liquidity and top lineoutperformance came at the expense of profitability, in line with our expectation that the company's more constrained balance sheet would force it to focus on sales volumes over margins." Goldberg, who has a sell rating on the stock and a price target of $9 per share, continued, "Given the continued weakness in the broader housing market, which we believe will only be exacerbated by rising foreclosures and the limited availability of non-conforming loans, we believe Hovnanian will need to discount prices further to maintain the necessary sales pace to reduce its leverage."

Hovnanian shares were up 65 cents (5.57%) to $12.32 on normal volume in 1 p.m. trading on the New York Stock Exchange.