Hovnanian Enterprises reported a net loss of $57.3 million for the first quarter of fiscal 2007, or $0.91 per fully diluted common share, compared with earnings of $81.4 million, or $1.25 per fully diluted common share, in last year's first quarter, in a conference call with analysts Friday (March 9) morning.
The loss was due to $93 million in pre-tax charges associated with the company's Ft. Myer's-Cape Coral operations in Florida. Hovnanian, based in Red Bank, N.J., attributed the write down to "a continued decline in sales pace and general market conditions, as well as increasing cancellation rates, during the quarter."
Hovnanian projected that, for the rest of the fiscal year, earnings should fall in range of $0.00 and $0.40 per fully diluted common share.
Ara K. Hovnanian, president and CEO, quipped that reporting these results was "not as pleasant" as such reports have been over the past 10 years. "We've been through ups and downs many times in our 50-year history," he said, adding that he believed better times were ahead. Just not yet.
"Most of our markets have begun to show signs of stabilization, but we are not yet confident that we have found the bottom of the housing slowdown," Hovnanian said. "When we do find the bottom of this market downturn, we are not anticipating a V-shaped or even a U-shaped recovery; rather we believe the recovery is more likely to first exhibit a prolonged period of stabilization and fairly flat performance before turning up."
Excluding the charges, the company reported pretax earnings for the first quarter were $26.7 million, equivalent to $0.20 of net earnings per fully diluted common share, exceeding earlier guidance of $0.05 to $0.10 per fully diluted common share.
Total revenue decreased 8.8% to $1.2 billion in the first quarter compared with the same period a year earlier, on the delivery of 3,266 homes with an aggregate sales value of $1.1 billion, down 15.1% compared to deliveries of 3,845 homes with an aggregate sales value of $1.2 billion in the first quarter of fiscal 2006. An additional 289 homes were delivered in unconsolidated joint ventures, compared with 585 homes in the first quarter of fiscal 2006.
Hovnanian also reported that net contracts for the first quarter of fiscal 2007, excluding unconsolidated joint ventures, declined 23.3% to 2,570 contracts. The dollar value of net contracts for the first quarter of fiscal 2007, excluding unconsolidated joint ventures, decreased 21.6% to $0.9 billion, compared to $1.2 billion in last year's first quarter. Excluding the Fort Myers-Cape Coral operations, consolidated net contracts in the first quarter for the Company were down 2.3% when compared to last year's first quarter.
Contract backlog as of January 31, 2007, excluding unconsolidated joint ventures, was 7,800 homes with a sales value of $2.7 billion, compared to a contract backlog of 12,096 homes with a $4.0 billion sales value at the end of the first quarter of fiscal 2006. Homebuilding gross margin, before interest expense included in cost of sales, was 18.0% for the first quarter of fiscal 2007. SEE RELEASE HERE
In response to an analyst question during the conference call, Larry Sorsby, Hovnanian's executive vp and CFO, said the company currently has 8,600 total homes in backlog, 3,000 of those in the Southeast.
The Homebuilding and Building Products team at JP Morgan research, which has a rating of neutral on Hovnanian, put out a research note stating, "While we are modestly disappointed with the lowering of guidance below our $0.90E., and believe further downside to guidance remains, we do believe HOV's comments regarding stabilizing pricing and positive February order growth, albeit tentative, point to market stabilization (ex-Florida). Accordingly, we maintain our positive sector stance."
In another research report, Wachovia Capital Markets, which maintains a market perform rating on the stock, said, We view HOV shares as fairly valued at current levels given the risks associated with the company's geographic concentration and acquisition-reliant growth strategy." The Wachovia report said of the industry, "As the housing cycle crests and slows, we expect increased competition to substantially impact orders-per-community and margins through 2007 at least. We believe builders with undervalued land assets or focused on generating positive cash flow in a slower environment and operating consistent share repurchase models will outperform."
Learn more about markets featured in this article: Cape Coral, FL.