Hovnanian Enterprises (NYSE:HOV), Red Bank, N.J., on Wednesday after market close reported a net loss of $28.6 million ($-0.36 per share) for its fiscal second quarter ended April 30. The loss was significantly smaller that the$118.6 million loss (-$150 per share) for the comparable period last year and beat the Wall Street consensus estimate of a loss of 64 cents a share.
Shares of Hovnanian were up 3% on the day Wednesday along with much of the rest of the market and were still gaining in after market trading shortly after the earnings report was released.
Still, while the company cut its land-related impairment charges to $1.2 million from $310.2 million in the comparable quarter of 2009, a decline in revenues to $318.6 million for the 2010 quarter from $398.0 million in the prior year's quarter and a decline in active selling communities put the squeeze on P&L. The company also took a $7.6 million charge to earnings against its tax asset valuation allowance.
New orders fell 17.2% to 1,314 homes for the quarter, compared to the same period in 2009, primarily the result of the 17% decrease in active selling communities. New-order dollars were off 22.7% to $336.6 million, and the average selling price of new orders fell 6.7% to $256,132. The price declines were led by a 22.4% drop in the company's Northeast region, where the average new-order price fell to $367,589 from $461,026 at the same time last year.
Net contracts per active selling community, excluding unconsolidated joint ventures, remained flat with last year's quarter at 7.4. The cancellation rate fell to 17% from 24% during the fiscal 2009 quarter.
Unconsolidated joint ventures added sales of 85 homes, up from 61 in last year's quarter, with dollars up 34.3$ to $33.1 million and the average price down 3.6% to $389,376.
Closings dropped 19.5% to 1,118 worth an aggregagte $310.5 million, down 18.7%. Average closing price was up 1% to $277,722. Unconsolidated joint ventures cosed 79 homes, up from 71 in last year's quarter, with dollars up 47% to $33.1 million and the average price up 32.1% to $419,063.
Backlog was down 3.7% to 1,789 homes with a dollar value of $534.6 million, down 9.8% from last year's quarter, and the average price down 6.3% to $298,853. Unconsolidated joint ventures added 176 homes in backlog, down 20.4%, with dollars down 42.9% to $84.2 million and the average price down 28.4% to $478,455.
Started unsold homes, excluding models, declined 30%, to 626 at the end of the quarter compared to 892 a year earlier.
Home building gross margin, before interest expense included in cost of sales, increased for the sixth consecutive quarter to 17.3% during the quarter of 2010 from 8.3% in the fiscal 2009 second quarter and 16% in the 2010 first quarter. SG&A was down to $42.4 million from $60.8 million in the prior-year quarter.
Adjusted EBITDA was positive for the first time in 11 quarters, the company said. Cash flow during the second quarter of fiscal 2010 was $188.2 million.During the quarter, a $274.1 million federal tax refund was received, $70.0 million of cash was used to repurchase debt and $72.0 million of cash was spent to purchase approximately 900 lots. Lot count at quarter's end was 28,940 lots, 11,532 lots under option and 17,408 owned. During the quarter, approximately 500 lots were purchased within 34 newly identified communities that were identified and controlled after January 31.
Total debt was reduced by $87.1 million during the quarter, bringing total notes payable down to $1.664 billion. The company at quarter's end showed a deficit in shareholders' equity of $137.8 million.
"Home prices have remained stable throughout most of our markets," said Ara K. Hovnanian, chairman, president and CEO. "This stability is evident in the trends we have seen in our gross margin, which increased sequentially for the sixth quarter in a row and in our land related charges, which were only$1.2 million, the lowest they have been since the first quarter of fiscal 2005. This stability in home prices gives us reason to believe that we are at or near the bottom of this cyclical housing downturn."
"We continue to identify and invest in new land parcels that make economic sense based on today's sales prices and today's sales paces," said J. Larry Sorsby, exec vp and CFO. He noted that since January 31, 2009 the company has contracted for or purchased approximately 7,100 lots in 98 communities, 2,300 owned and 29,00 optioned, in 86 new communities. It also added 1,900 lots in 12 communities through joint ventures, he said.
Said Sorsby, "While we expect that less than 10% of our 2010 deliveries will be from newly purchased communities, we expect that approximately 40% of our2011 consolidated deliveries will come from newly identified communities.Deliveries from these newly acquired communities should generate normalized gross margins in the 20% range. In addition, due to the expected increased volume from newly identified communities, we should be able to report further improvements in our ratios of general and administrative and interest costs as a percent of revenues in future periods."
Hovnanian concluded, ""We still have much work to do as we strive to return to profitability. We are encouraged by recent home price stability and improving margins. We are further encouraged by our ability to acquire and obtain land throughout the country that makes economic sense and delivers good margins. At the same time, we recognize that the expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery.Nonetheless, we see more positive signs today than negative."