Hovnanian Enterprises, Inc. on Monday (August 13) reported its new-home deliveries sank 31% from year-ago levels during its fiscal third quarter, to 3,179, excluding 329 homes in unconsolidated joint ventures.
Hovnanian also announced that it would be taking between $90 million and $110 million in charges related to land impairment and write-offs for the quarter.
Net contracts for the quarter were off 24% to 2,539, also excluding unconsolidated joint venture contracts on 255 homes. The company cancellation rate increased from 33% at this time last year and 32% during the second quarter of this year to 35% of gross contracts during this year's fiscal third quarter. announced preliminary net contracts and deliveries for the third quarter ended July 31, 2007. Contract backlog, excluding unconsolidated joint ventures, fell 31% from last year's third quarter to 7,126 this year.
The results reported by the company are preliminary; it will report is earnings for the quarter ended July 31 on September 6 after market close.
Carl Reichardt, the lead home building analyst for Wachovia Capital Markets, pointed out in a research note that the impairments were more than double those taken in the first and second quarters and that Hovnanian had now taken $500 million in write-downs, equivalent to 18% of book value. He concluded, "Consistent with the financial results we saw for many of the builders during the June quarter, order rates were to be sluggish at best and impairments increased substantially. We believe that in Hovnanian's case however, investors are most focused on cash flow generation and balance sheet liquidity."
Michael Rehaut at J.P. Morgan Securities estimated the net write-downs to date at 16.9% of equity and wrote that the home building group believes Hovnanian remains well within its debt covenants. "Using the midpoint of HOV's 3Q charges, we estimate this lowers HOV's $460 cushion of its [minimum] tangible net worth by only $62 million. Moreover, we point out HOV is not subject to an interest coverage ratio, and it remains below its 68% leverage ratio requirement."