Hovnanian Forecasts 1Q Loss

Red Bank, NJ, February 28, 2007--Homebuilder Hovnanian Enterprises forecast a first-quarter loss on Tuesday in more bad news for the nation's housing sector. The company said it also expects an adjusted profit of 20 cents per share for the first quarter, above its prior guidance of 5 to 10 cents per share.

The adjusted profit estimates include about $8 million of charges related to write-offs of predevelopment costs and land deposits during the first quarter, and exclude charges related to its Fort Myers-Cape Coral operations in Florida.

On average, analysts forecast a loss of 2 cents per share for the quarter.

The company, which builds luxury homes in 17 states, will release first-quarter results after the closing bell on March 8.

Analysts had mixed reactions to Tuesday's news.

Alex Barron of JMP Securities said Hovnanian's forecast is an indication of a painful year for homebuilders, who are dealing with a backlog of inventory in the market, and buyers, who are getting hit by prices and less accessibility to mortgages.

But other analysts said they saw signs of improvement with Tuesday's report.

JP Morgan analyst Michael Rehaut said Hovnanian's projections showed improvement compared with fourth-quarter orders, land write-offs and earnings per share.

"While these results precede the critical spring selling season, we believe such improvement leading into the period is encouraging," he wrote in a note to investors. The company rates the stock neutral, but lowered earnings targets.

Other homebuilders have reported poor earnings performance.

Last week, the largest luxury builder in the U.S., Toll Brothers Inc., reported a 67 percent drop in fourth-quarter earnings. Goldman Sachs this month cut its earnings target on three other builders and said low backlogs and high order cancellation rates throughout the industry make it unlikely that overall orders will increase in 2007.

Hovnanian announced plans on Tuesday to record about $90 million of pretax charges on its Fort Myers-Cape Coral operations due to a continued decline in sales pace and general market conditions. Increasing cancellation rates were also a factor, the company said.

The builder delivered 3,266 homes in the first quarter, excluding 289 homes in joint ventures. Net contracts for the quarter slipped 23 percent to 2,570, excluding 43 homes in joint ventures. Companywide, cancellations for the first quarter rose to 36 percent of gross contracts from 35 percent in the fourth quarter of 2006.