Tough Landing for Hovnanian

Hovnanian Enterprises'(HOV Quote) huge fourth-quarter loss shows just how bad land impairments could get for the homebuilding sector.

The Red Bank, N.J.-based builder recorded $336 million in impairment charges and write-offs of land option contracts, resulting in a $115.3 million loss for its fiscal fourth quarter.

The charges amounted to 19% of Hovnanian's book value at the end of the year. Book value, or the amount of total shareholders' equity on the company's balance sheet, fell from $2.05 billion at the end of the third quarter to $1.81 billion at the end of the fourth quarter.

The charges were in line with Hovnanian's preannouncement in early November. The only real news in the company's earnings release late Monday was its guidance for 2007 earnings per share of $1.50 to $2. Analysts polled by Thomson First Call projected earnings of $2.71 a share.

The guidance is based on current sales conditions, so it could be adjusted if the market improves or deteriorates further in coming quarters.

The huge hit to shareholders' equity shows why the notion of book value remains a tricky one for investors, since book value could erode in any given quarter based on such large impairment charges.

Hovnanian shares were down 3.7% to $33.94 Tuesday. The stock now trades 17% above the company's book value per share.