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Hovnanian Enterprises Reports Third Quarter Fiscal 2012 Results

RED BANK, N.J., Sept. 6, 2012 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its third quarter and nine months ended July 31, 2012.

RESULTS FOR THREE AND NINE MONTH PERIODS ENDED JULY 31, 2012:
  • Net income was $34.7 million during the fiscal 2012 third quarter, or $0.25 per common share, compared with a net loss of $50.9 million, or $0.47 per common share, in last year's third quarter. This represents an increase of $85.6 million over last year's net income during the quarter. Net income in the fiscal 2012 third quarter benefitted from the reversal of $37.0 million of state tax reserves.  
  • In the first nine months of fiscal 2012, net income was $18.2 million, or $0.15 per common share, compared with a net loss of $187.7 million, or $1.92 per common share, in the prior year's first nine months.  
  • Total revenues were $387.0 million during the fiscal 2012 third quarter up 35.5% compared with $285.6 million in last year's third quarter. In the first nine months of fiscal 2012, total revenues were $998.3 million up 25.8% compared with $793.3 million in the prior year's first nine months.  
  • The dollar value of net contracts, including unconsolidated joint ventures, for the third quarter ended July 31, 2012 increased 31.8% to $507.0 million compared with $384.6 million in the same quarter last year. The number of net contracts increased 18.8% to 1,541 homes from 1,297 homes in the same quarter last year.  
  • For the nine months ended July 31, 2012, the dollar value of net contracts, including unconsolidated joint ventures, increased 43.0% to $1.4 billion compared with $980.7 million in the same period a year ago and the number of net contracts increased 32.7% to 4,395 homes compared with 3,313 homes in the first nine months last year.  
  • Homebuilding gross margin percentage, before interest expense included in cost of sales, was 18.2% for the fiscal 2012 third quarter, compared to 15.3% during the third quarter of 2011 and 17.4% in the second quarter of 2012. For the nine month period ended July 31, 2012, homebuilding gross margin percentage, before interest expense included in cost of sales, was 17.5% compared with 15.6% in the first nine months of 2011.  
  • Total SG&A was $48.1 million or 12.4% of total revenues for the three months ended July 31, 2012 compared to $46.5 million or 16.3% of total revenues in the third quarter of the prior year and 13.9% in the second quarter of 2012. In the first nine months of 2012, total SG&A was $141.6 million or 14.2% of total revenues compared with $153.6 million or 19.4% of total revenues in the same period last year.  
  • Consolidated pre-tax land-related charges for the third quarter of fiscal 2012 were $0.7 million compared with $11.4 million in the third quarter of the prior year. For the nine months ended July 31, 2012, the consolidated pre-tax land-related charges were $7.2 million compared with $41.9 million in last year's first nine months.  
  • Repurchased $2.0 million of unsecured senior notes for $1.5 million in cash and issued approximately 5.4 million shares of Class A common stock in exchange for $21.0 million of unsecured senior notes during the three months ended July 31, 2012, resulting in a $6.2 million gain on extinguishment of debt.  
  • Pre-tax loss during the third quarter of 2012 was $1.8 million compared with $55.6 million in the same period of the prior year. For the nine months ended July 31, 2012, the pre-tax loss was $17.0 million compared with $193.8 million during the first nine months a year ago.  
  • The contract cancellation rate, including unconsolidated joint ventures, in the third quarter of 2012 was 21%, compared with 19% during the 2011 third quarter.  
  • Contract backlog, as of July 31, 2012, including unconsolidated joint ventures, was 2,452 homes with a sales value of $813.9 million, which was an increase of 41.2% and 42.6%, respectively, compared to July 31, 2011.  
  • Deliveries, including unconsolidated joint ventures, were 1,387 homes for the third quarter of fiscal 2012, up 24.7% compared with 1,112 homes in the third quarter of the prior year. During the nine months ended July 31, 2012, deliveries, including unconsolidated joint ventures, were 3,606 homes compared with 2,971 homes in the first nine months of last year, an increase of 21.4%.  
  • The dollar value of net contracts and the number of net contracts, including unconsolidated joint ventures, for the month of August increased 48.7% and 26.0% respectively to $166.8 million compared with $112.2 million and to 484 homes from 384 homes in the same month last year.  
  • The valuation allowance was $909.1 million as of July 31, 2012. The valuation allowance is a non-cash reserve against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.

CASH AND INVENTORY AS OF JULY 31, 2012:
  • During the third quarter of 2012, we entered into a land banking arrangement with GSO Capital Partners LP ("GSO"), the credit arm of The Blackstone Group, for total acquisition and committed future development costs of up to $125 million. Under this arrangement, we sold 620 of our previously owned lots to GSO for $37.1 million in net cash proceeds with GSO agreeing to fund the remaining development costs, and we have the option to purchase back these finished lots on a quarterly takedown basis. 
  • To complete the $125 million land banking arrangement with GSO, we have already identified and GSO is currently evaluating additional land parcels totaling approximately $60 million in acquisition and development costs.
  • After spending $117.6 million during the third quarter of 2012 on land and land development and $1.5 million to repurchase debt, homebuilding cash increased $23.1 million from the second quarter to $252.1 million, as of July 31, 2012, including $32.8 million of restricted cash required to collateralize letters of credit.  
  • As of July 31, 2012, the land position, including unconsolidated joint ventures, was 29,089 lots, consisting of 10,597 lots under option and 18,492 owned lots.

COMMENTS FROM MANAGEMENT:

"Despite a continuing weak United States economy, the dollar amount of our net contracts reflected strong year-over-year increases of 43% and 32% for our first nine months and the third quarter of fiscal 2012, respectively, as compared to the same periods in fiscal 2011. Unlike the past few years, the market for new homes has been resilient through both the spring selling season and throughout the summer months this year. We believe the housing market's recent overall strength and our significantly improved sales pace this year indicates that the market for new homes has bounced off the bottom and is already in a period of gradual recovery. Additionally, we are encouraged with the progress we made in our operating metrics, particularly with the 290 basis point year-over-year improvement in our gross margin and the 390 basis point reduction in total SG&A as a percentage of total revenues during the third quarter," commented Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer.

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