Like its counterparts, Hovnanian Enterprises is fortifying itself against a crumbling housing market. In 2008’s second quarter, the New Jersey-based public builder bolstered its liquidity by issuing new stock and debt, which combined raised more than $726 million. It wrote off $251 million in land-related costs, which included both impairments and forfeited option deposits. It renegotiated its bank credit facility.
“We didn’t want to be caught in a position where our liquidity was being restricted at just the wrong time,” CEO Ara Hovnanian told analysts during today’s earnings call.
Such decisions make sense in today’s difficult environment. Last quarter, Hovnanian saw deliveries fall by 21 percent to 2,494 homes and revenues tumble by 30 percent to $776 million, as compared to the same time a year ago. As a result, the company’s quarterly loss widened to $341 million, more than 10 times the amount it lost in the second quarter of 2007.
But Hovnanian is making progress in its efforts to generate cash and return to profitability. Community counts have dropped to 379 developments, a figure executives expect will continue to shrink throughout 2008. The builder has decreased the number of spec homes to 1,503 units, also down 54 percent since 2006’s glory days. It has also contracted its land holdings, to approximately 54,000 lots. Just under half of those are owned, giving the company 1.9 year’s worth of owned lots. “That’s still more than we’d like to own at this moment,” Hovnanian admitted.
The company’s workforce has been trimmed accordingly. Hovnanian today employs 3,162 people, a reduction of 54 percent compared to its 2006 peak. “This is clearly one of the more painful, but necessary, aspects of an industry downturn,” Hovnanian told analysts today.
On the positive side, Hovnanian’s cancellation rates improved, to 29 percent in the second quarter. The builder also generated $56 million in positive cash flow, bringing it roughly to breakeven in terms of cash flow from operations for the first six months of 2008.
Alison Rice is senior editor, online, for BUILDER magazine.
