Hovnanian Sees 'Normalized' Market

Hovnanian's (HOV Quote) latest quarterly profit easily beat analyst expectations, but the homebuilder kept its 2006 guidance intact and said much of the national housing market is returning to a more "normalized" pace.

Investors sent the stock down in after-hours trading, after it had fallen 3.5% Wednesday to close at $48.73.

For the fourth quarter ended Oct. 31, Hovnanian reported net income of $165.4 million, or $2.53 a share, up from $133.8 million, or $2.06 a share, a year earlier. Analysts, on average, expected earnings of $2.42 a share, according to Thomson First Call.

Hovnanian said its quarterly results would have been even better if it weren't for the impact of lost deliveries in Florida because of the hurricanes. Sales in the quarter totaled $1.77 billion, up 26% from $1.40 billion a year earlier.

The Red Bank, N.J., company now has a $5.1 billion backlog of homes sold but not yet closed. Rather than upping its guidance, management affirmed its prior fiscal 2006 EPS forecast of $8.05 to $8.40.

For the first quarter, the company sees earnings of $1.10 to $1.25 a share; Wall Street predicts EPS of $1.58. Hovnanian said a variety of issues -- including Hurricane Wilma, regulatory delays in California, and construction delays caused by labor and material shortages in Arizona and Florida -- are causing a greater back-end weighting of its fiscal 2006 results.

The company also issued some statements in its earnings press release conceding that much of the national housing boom is slowing.

"We believe that our more highly regulated markets, including California, Washington, D.C., and the Northeast are returning to a more normalized level of activity with regard to both sales pace and price increases," J. Larry Sorsby, Hovnanian's chief financial officer, said in the release.

For its full fiscal year, Hovnanian's profit rose to $469.1 million, or $7.16 a share, from $348.7 million, or $5.35 a share, a year earlier. Analysts predicted earnings $7.06 on average, Revenue increased 29% to $5.3 billion.

The company also said it would likely not be increasing its share buyback program anytime soon. "It is tempting to repurchase an even greater number of shares given our current low valuation and low P/E multiple; however, we believe current opportunities in the land and housing market allow us to generate greater returns on capital, even in a more normalized sales environment, than repurchasing more stock," Sorsby said.

Hovnanian shares fell as much as 6% in late trading but rebounded somewhat to change hands at $47.85, down 88 cents, or 1.8%.