Red Bank, NJ, December 19, 2006--Hovnanian Enterprises reported a loss in its fiscal fourth-quarter, but forecast a profit of $1.50 to $2 a share in fiscal 2007.
Company CEO, Ara Hovnanian said he's "started to see a glimmer of hopeful indicators that the markets may be stabilizing."
The company’s quarterly net loss was $115.3 million, or $1.88 a share, vs. a net profit of $168.1 million, or $2.53 a share, a year earlier.
Revenue was $1.7 billion compared to $1.8 billion for the fourth quarter of fiscal 2005.
In November, the company warned it expected to post a quarterly loss on land charges. It estimated it would book about $300 million in inventory-impairment charges and land-option write-offs.
Banc of America Securities analyst Daniel Oppenheim was forecasting a loss of $1.96 a share for the quarter.
For its full fiscal year, Hovnanian said it generated net income of $149.5 million, or $2.14 a share, vs. a net profit of $471.8 million, or $7.16 a share, a year earlier.
"We did not anticipate the suddenness or magnitude of the fall in pricing that occurred this year in many of our communities," Hovnanian said in a statement.. "Our profitability and the pace of new home sales in our markets continues to be adversely impacted by high contract cancellation rates, increases in the number of resale listings and increases in the number of new homes available for sale."
Hovnanian's contract cancellation rate for the fourth quarter was 35%, compared with 25% in the fourth quarter of 2005 and a 33% rate in the third quarter of fiscal 2006, he noted.
The company walked away from $141 million in land deposits and predevelopment costs and took impairment charges of $174 million during its fiscal fourth quarter, Chief Financial Officer J. Larry Sorsby said.
"Although it is painful to incur these write-offs, we believe it is much better than proceeding to build-out these communities at very low returns or losses over the coming years," he explained.
Hovnanian noted some hopeful indicators from the past two months, such as modest declines in resale inventories, improving consumer confidence and healthy levels of buyer traffic at many of the company's communities.
Total inventories stood at $4.07 billion at the end of October, down from $4.65 billion at the end of July.
The company's profit forecast of $1.50 to $2 a share for fiscal 2007 assumes the economy remains reasonably healthy and mortgage rates remain stable, while the company delivers 16,000 to 18,000 homes, Sorsby added.
Fiscal first-quarter earnings could come in at between 5 cents and 10 cents a share, with the majority of 2007 profit coming during the second half of Hovnanian's fiscal year, he said.
"The overall U.S. housing market may hit the bottom in the first half of 2007," Sorsby said. "However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves."
