Hovnanian Enterprises (NYSE:HOV) after market close on March 10 reported an after-tax loss of $131 million, or $2.07 per share, for its first fiscal quarter of 2008, ended Jan. 31. The loss was greater than the $1.96 expected by analysts, but not by much. The company did beat, handily, analyst revenue estimates. As a result, the company's stock was up marginally to $8.61 in early after-hours trading following the earnings announcement and up 16.4% to $10 at market close on March 11.

Included in the loss were $94 million of pre-tax land-related charges including land impairments of $74 million and write-offs of predevelopment costs and land deposits of $16 million, as well as $4 million related to unconsolidated joint ventures. The loss also included a $21 million FAS 109 deferred tax valuation allowance charge.

Hovnanian also said it has closed an amendment to its revolving credit facility that cut its maximum available line to $900 million and "secures secures outstanding amounts with liens on a portion of the company's assets." It said the amendment resulted in a "meaningfully less restrictive covenant package." It had $2.3 billion in long-term debt as of the end of the 2007 fiscal year.

Revenues for the quarter fell 6.1% to $1,093,701 from $1,165,801 during the same quarter last year. Excluding unconsolidated joint ventures, the company delivered 3,604 homes, including 1,345 in the Fort Myers-Cape Coral region, with an aggregate sales value of $1.05 billion, an increase of 10.3% from3,266 home deliveries with an aggregate sales value of $1.14 billion in the fiscal 2007 first quarter.

Net contracts for the quarter fell 41.2% to 1,511 contracts, and the cancellation rate fell to 38% from 40% in 2007's fourth quarter but rose from 36% in last year's first quarter. Contract backlog as of January 31,2008 was 3,845 homes with a sales value of $1.3 billion, down 49.8% compared a sales value of $2.7 billion at the end of last year's first quarter.

Average prices fell 13.9% during the quarter, reflecting the tough market conditions in most of the country, with the company's average dropping to $302,971. Prices were off 7.1% in the Northeast, down 18.3% in the Mid-Atlantic, down 1.5% in the Southeast, up 0.4% in the Southwest, down 16.6% in the Midwest and down 15.5% in the West.

Hovnanian cut its land position by 5,683 lots compared to October 31, 2007, reflecting owned and optioned position decreases of 1,308 lots and 4,375 lots, respectively, over the same time period. As of quarter's end, the company had 31,729 lots controlled under option contracts and owned 27,372 lots for a total of 59,101 lots, a 51% decline from peak on April 30, 2006.

The company cut its community count to 404 active selling communities as of quarter's end, down 6.3%, or 27 communities, from the end of fourth quarter, 2007. It had 436 active communities at the end of last year's first fiscal quarter.

Home building gross margin fell to 6.7% in the quarter, compared with 18.0% in the first quarter of 2007, due in part to 1,345 deliveries in the Fort Myers-Cape Coral operations which generated only a 2.0% gross margin. At the end of the quarter, backlog in Fort Myers-Cape Coral was 306 homes with a sales value of $84 million.

Pretax income from Financial Services in the first quarter of fiscal 2008 was $3.1 million.

Hovnanian ended the quarter with $73 million of home building cash. The balance on its revolver was $325 million. The company's debt-to-capital ratio at the end of the quarter was 64.6%.

"Market conditions remain challenging across many of our markets," commented Ara K. Hovnanian, president and CEO. "We continue to focus on reducing our inventories, maximizing cash flow and shrinking our overhead to ensure that we properly manage the difficult market conditions we currently face. Despite the persistence of negative factors impacting the homebuilding industry, we are diligently working to position the company to take advantage of the stronger demand for new homes that will inevitably return once the current housing correction ends."

The company said it continues to estimate positive cash flow for 2008 in excess of $100 million.

Carl Reichardt, home building analyst at Wachovia Securities, was surprised by the volume of Hovnanian sales but noted that the sales came at a cost. " HOV's revenue beat seems a function of closing a large number of exceedingly low-margin homes related to its Fort Myers business and its ''Sale of the Century'' promotion from Fall 2007," Reichart wrote in a research note. "Weak orders and backlog on what are already thin margins suggests that HOV will continue to struggle to be profitable for the foreseeable future."

Reichardt also noted that Hovnanian is the second major public, with Beazer, to secure its revolver, and that the company's spec homes, averaging more than 4.5 per community, remain high.