Hovnanian Enterprises of Red Bank, N.J. on Tuesday night reported a net loss of $340.7 million, -$5.29 per common share, for its fiscal second quarter, twice what analysts on Wall Street were expecting. Hovnanian stock (NYSE:HOV) opened down and was trading nearly 6% below Tuesday's close at $7.86 on the news.

The loss included $251.0 million in pre-tax land-related charges, including land impairments of $226.4 million and write-offs of predevelopment costs and land deposits of $19.5 million, as well as $5.1 million representing its write-offs and impairments in unconsolidated joint ventures. It also took at$120.6 million charge under FAS 109 for deferred tax valuation allowance.

The results led one home building analyst, David Goldberg of UBS, to reduce earnings estimates for fiscal 2008 to a loss of $6.70 per share from a loss of $5.75 per share previously.

Hovnanian's revenues were down 29.4% from last year's fiscal second quarter to $776.4 million. In a spring selling season that never materialized, the company delivered 2,494 homes, a decrease of 21% from the same period last year, and it wrote contracts of 2,226 homes, down 29%. The cancellation rate was 29% for the quarter, down from 38% during this year's first quarter and from 32% at this time last year.

Home building gross margin fell to 6.8% from 16.3% a year ago but was up ten basis points from the first fiscal quarter of 2008.

Contract backlog at quarter's end was 3,577 homes with a sales value of $1.2 billion, a decrease of 54% from the same period a year ago. Excluding backlog from the Company's Fort Myers-Cape Coral operations in both periods, backlog decreased 41%.

Hovnanian cut its spec inventory by 19% in the quarter, from 2,321 started unsold and models on January 31, 2008 to 1,885 at April 30, 2008. Excluding model homes, the Company had 1,503 started unsold homes as of the end of the second quarter of fiscal 2008.

It also cut its land position by 6,646 lots compared to January 31, 2008, including 2,108 owned lots and 4,538 optioned lots. At quarter's end, Hovnanian had 27,191 lots controlled under option contracts and owned25,264 lots. The total land position of 52,455 lots is a 57% decline from the peak total land position on April 30, 2006.

Hovnanian also reduced its community count by 25, or 6%, to 379 active selling communities on April 30, 2008 from the end of the previous quarter.The Company had 437 active selling communities in the year ago quarter.

The company achieved positive cash flow during the quarter, one quarter earlier than the company previously projected. It now expects to end the fiscal year in October with $800 million in home building cash.

When combined with the cash generated by a recent private placement debt offering of $600 million and an common stock issuance of 14 million shares that raised $126 million, the positive cash flow has put the company on more sound financial footing. Roughly $325 million of the capital raised was used to pay off the company's existing credit facility.

"Through the combination of our recent capital market activity and increased cash flow expectations, we now believe that we have ample liquidity to weather the current downturn," said CEO Ara Hovnanian in a prepared statement. "We expect to persevere through the current downturn and we will be in position to thrive again once the housing markets begin to recover."

Goldberg, while lowering his earnings estimate, maintained his price target of $9 per share on Hovnanian stock. However, he noted that after the results of the debt and equity offerings are factored in, Hovnanian's debt-to-equity ration remains at an elevated 62%. He wrote, "We believe management will need to continue to focus on sales volumes over profitability to generate free cash flow and reduce leverage. As such, we expect HOV to underperform its more financially flexible peers in the near term."