Hovnanian Enterprises reported a pre-tax loss of $169 million on revenues of $1.09 billion for its first quarter of fiscal 2008 ending on Jan. 31, 2008.
In speaking to analysts this morning, president and CEO Ara Hovnanian said while there’s really no evidence that the housing market is improving, the company is taking the right steps to reduce its inventories, maximize cash flow, and reduce overhead.
“The long-term housing demographics are not going away,” said Hovnanian. “During the downturn much of our competition will go away and we’ll be positioned to take advantage of pent-up demand and decreased competition,” he concluded.
During fiscal 2008’s first quarter, the company incurred a total of $94 million of pre-tax land-related charges. This includes land impairments of $74 million and write-offs of predevelopment costs and land deposits of $16 million, as well as another $4 million for the equity portion of write-offs and impairment charges in unconsolidated joint ventures. Similar charges in the first quarter of 2007 totaled $93 million.
On the inventory front, Hovnanian said the company now has 27,372 owned lots and 31,729 optioned lots, a decrease of 51 percent since the company’s peak in 2006. The company also projects it will generate a positive cash flow of $100 million for fiscal 2008 and has taken steps to cut costs, most notably a 47 percent reduction in staffing since 2006.
The company also believes it has ample liquidity moving forward. Based on the market contracting, the big builder reduced the maximum commitment on its credit facility to $900 million from $1.2 billion. The company agreed to secure outstanding borrowings with liens on its assets.
Gross margins were 6.7 percent in the first quarter compared to 18 percent in the first quarter of 2007. Hovnanian said margins were adversely impacted by the 1,345 deliveries in the company’s Fort Myers-Cape Coral operations that generated only 2 percent gross margins.
Hovnanian has also reduced its number of active selling communities by 27, or 6.3 percent. As of Jan. 31, 2008, the company had 404 active communities.