Huge Charges Hit Hovnanian

Hovnanian Enterprises(HOV Quote) swung to a fiscal fourth-quarter loss as bottom-line results were hit by big land impairment charges and write-offs, as well as weaker demand.

The Red Bank, N.J.-based homebuilder posted a loss of $115.3 million, or $1.88 a share, reversing a year-earlier profit of $168.1 million, or $2.53 a share. The results included charges of $141 million from walking away from land deposits and $174 million related to impairments.

Revenue for the quarter ended Oct. 31 slid to $1.75 billion from $1.77 billion. Homebuilding gross margins sank to 23.1% from 26.4% as the company had to cut prices and offer incentives to move inventory.

"We did not anticipate the suddenness or magnitude of the fall in pricing that occurred this year in many of our communities," said President and CEO Ara Hovnanian 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."

The company's contract cancellation rate for the fourth quarter was 35%, up from 25% in the fourth quarter of 2005 and 33% in the third quarter of fiscal 2006.

Hovnanian did say that it has seen a "glimmer" of hopeful indicators in recent months, including declines in resale inventories, improving consumer confidence and healthy levels of buyer traffic at many communities.

"We believe that the overall U.S. housing market may hit the bottom in the first half of 2007," Ara Hovnanian said. "However, the housing market is likely to bounce along the bottom for several quarters before pricing and sales pace improves."

For fiscal 2007, Hovnanian forecast earnings of $1.50 to $2 a share. Analysts polled by Thomson First Call project earnings of $2.71 a share.

The company anticipates 16,000 to18,000 home deliveries in the year, including 1,000 to 1,500 deliveries from joint ventures. In fiscal 2006, Hovnanian delivered 20,201 homes, including 2,261 from joint ventures.

Shares of Hovnanian were down $1.64, or 4.7%, to $33.61 in after-hours trading.