Hovnanian Posts Second-Quarter Loss, Withdraws Forecast

Luxury home builder Hovnanian Enterprises posted a quarterly loss on Thursday compared with a year-earlier profit and withdrew its prior earnings forecast, citing a protracted U.S. housing slowdown.

For the fiscal second quarter ended April 30, Hovnanian posted a net loss of $30.7 million, or 49 cents per share, compared with a profit of $101.0 million, or $1.55 a share, in the year-earlier quarter.

On May 4, the Red Bank, New Jersey-based company said it expected a loss of 45 cents to 50 cents per share, including land impairment and predevelopment write-offs.

Before the write-offs, the company had a pretax loss of $7.1 million, or 12 cents per share, narrower than the loss of 30 cents a share it forecast on May 4.

"We are frustrated to report that the housing market has continued to slip further in many locations in terms of both sales pace and sales prices," Ara Hovnanian, chief executive, said in a statement.

"The housing market weakened in the latter part of the second quarter and the slower conditions have continued into May," he added. "Lower prices offered to buyers to close homes during the quarter also led to a further reduction in margins and a net loss for the quarter."

Home-building gross margin before interest expenses included in the cost of sales was 16.3%, down 7.4% from the prior year.

Toll Brothers, the largest U.S. builder of luxury homes, reported last week that quarterly profit sank 79% from the prior year. Total revenues fell 29.4% to $1.1 billion. Excluding unconsolidated joint ventures, the company closed on the sale of 3,150 homes valued at $1.1
billion. That is down 30.8% from 4,555 homes valued at $1.5 billion a year earlier.

U.S. home builders have slashed forecasts in recent months as an abundant supply in many markets curtailed demand and forced companies to cut prices or boost buyer incentives.

Rising defaults among subprime borrowers with weak credit histories have further increased supply and taken buyers out of the market.

Hovnanian withdrew the forecast it issued on March 8 that saw earnings, excluding charges related to its Fort Myers-Cape Coral, Florida operations, in the range of $1.10 to $1.50 per share and break-even to 40 cents per share after charges.

But the company expects to sell between 13,200 and 14,200 homes, excluding those from unconsolidated joint ventures. That is down from its prior forecast of 16,000 to 17,200 homes, which included 1,000 to 1,400 sales from unconsolidated joint ventures.

Hovnanian shares closed down 69 cents, or 2.7% at $25.26 before the company released its quarterly results, and were little changed in after-hours activity.

Year-to-date, Hovnanian shares are off 25.5%, compared with an 11% decline in the Dow Jones U.S. Home Construction index.