Hovnanian Swings to Loss as Inventories Remain High


Hovnanian Enterprises reported its fourth consecutive quarterly loss after markets closed Thursday, as the luxury homebuilder cited continuing problems of credit availability and high inventory.

The company also said it would slash prices on homes across the country beginning late next week to try to sell off excess inventory.

In after-hours trading, shares rose 48 cents, or 4.22 percent, to $11.85 Thursday.

Hovnanian Results

After paying preferred stock dividends, the company reported a loss of $80.5 million, or $1.27 per share for the quarter that ended July 31. This compared with a profit $74.4 million, or $1.15 per share, for the same period a year ago.

Analysts surveyed by Thomson Financial were expecting Hovnanian to lose 99 cents per share in the quarter.

The Red Bank, N.J.-based company, which builds luxury homes in 18 states, including California, Florida, New Jersey and New York, is the latest builder to be slammed by the downturn in the housing market.

Last month, Toll Brothers reported its third-quarter profit plunged nearly 85 percent as the housing downturn and credit worries triggered cancellations and hefty writedowns.

In the quarter, Hovnanian incurred $108.6 million in pretax charges for write-offs of land deposits and markdowns in the value of land.

Revenue in the quarter dropped 27 percent to $1.13 billion from $1.55 billion a year ago.

Hovnanian reported a 35 percent cancellation rate for the quarter, compared with 33 percent for the same quarter in 2006.

Chief Executive Ara K. Hovnanian said conditions in most of the company's markets remain challenging.

"Credit tightening in the mortgage market has reduced the number of qualified home buyers, existing home inventory levels remain persistently high in many of our markets and buyer psychology has been negatively impacted by a steady stream of news related to falling housing prices, foreclosure rates, and mortgage availability," he said in a statement.

Last week, Fitch Ratings downgraded its credit ratings on several homebuilders, including Hovnanian, citing the problems in the home mortgage industry and other factors.

Fitch said the downgrade also reflects negative trends in Hovnanian's operating margins and deterioration in its credit metrics.

Hovnanian's sales results showed evidence of the continued housing slump as contracts for the third quarter declined 24.2 percent to 2,539. Hovnanian sold 3,179 completed homes, down 31.2 percent from 4,623 in the third quarter of last year.

To try to boost sales, the company is offering a nationwide three-day sale beginning Sept. 14. Hovnanian will offer deep discounts in each of its 449 communities.

Alex Barron, senior research analyst at Agency Trading Group in Wayzata, Minn., said slashing prices to reduce high inventory should help the company improve its cash flow.

"Right now the game is who can cut the prices the most," he said. "They have a lot of debt that they need to service and in order to service that debt they need to have some cash coming in the door."

While the long-term housing market looks bleak, Barron said he doesn't see Hovnanian going into bankruptcy.

"They'll probably end up being a smaller company than they currently are, but at this point I don't think there's any indication that they're in trouble."

Hovnanian also blamed the tightening of lending standards in the mortgage market beyond those made to subprime lenders.

"This is leading to a further reduction in the universe of qualified buyers for our homes," he said.