Though it may have been slower than it would have liked in shedding excess inventory, Hovnanian Enterprises Inc. (NYSE: HOV) says it's now in good shape–and that has positioned it to finally generate positive cash flow.

In today's conference call on third quarter earnings, Ara K. Hovnanian, president and CEO, said that staffing cuts and debt as well as inventory reduction has positioned the builder to generate $175 million to $250 million of cash flow in the fourth quarter 2007 and $100 million to $400 million of positive cash flow into 2008.

That's assuming the sales environment doesn't deteriorate even further, which could be a challenge since its net contracts fell 24 percent in August 2007 compared to August 2006.

"We will be a lot more aggressive and are making significant progress in generating cash flow," Hovnanian said.

In the third quarter, the company racked up $21.2 million in lot option walk-aways by segment. It bailed on $6.9 million of land in the West, $5.8 million in the Southeast, and $4.9 million in the Northeast. That number could grow, if the company doesn't see a 30 percent internal rate of return or better. "We are prepared to walk away from [areas] where we don't get the terms we seek," Hovnanian says.

In July 2006, the company had 32,576 lots. That number dropped 11 percent over the next year. The company plans to continue selling lots, but that's a challenge. "The land sale market is a little dry at the moment," Hovnanian said.

Yet the builder has been able to move some lots. It sold a block of lots in the horrific Fort Myers, Fla., market right after its third quarter ended and expects to finalize another sale in the fourth quarter.

Hovnanian took $108.6 million of pretax charges because of land impairments and write-offs of predevelopment costs and land deposits for the third quarter of the 2007 fiscal year. These impairments were mainly confined to California and Florida, according to the company. "We continue to evaluate land potential for impairment in each quarter," Hovnanian said.

Overall, Hovnanian reported an after-tax loss of $80.5 million for the third quarter of fiscal 2007, or a loss of $1.27 per common share. In the third quarter of 2006, the builder reported earnings of $74.4 million, or $1.15 per fully diluted common. Its total revenues decreased 27.1 percent to $1.1 billion for the third quarter compared with the third quarter of 2006.

The company delivered 3,179 homes with an aggregate sales value of $1.1 billion in the third quarter. That was a drop of 31.2 percent from 4,623 home deliveries in the third quarter of fiscal 2006, with an aggregate sales value of $1.5 billion.