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TheStreet Open House

Hovnanian Enterprises Reports Fiscal 2013 Results

Stocks in this article: HOV

RED BANK, N.J., Dec. 12, 2013 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its fourth quarter and twelve months ended October 31, 2013.

RESULTS FOR THE THREE AND TWELVE MONTH PERIODS ENDED OCTOBER 31, 2013:

  • Total revenues were $591.7 million during the fiscal 2013 fourth quarter, an increase of 21.5% compared with $487.0 million in last year's fourth quarter. For the full year, total revenues increased 24.2% to $1.85 billion compared with $1.49 billion in the prior year.  
  • Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, increased 430 basis points to 22.6% for the fiscal 2013 fourth quarter compared with 18.3% during the fourth quarter of 2012, and was up 230 basis points compared to the 20.3% reported for the third quarter of 2013. For the full year ended October 31, 2013, homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, increased 230 basis points to 20.1% compared with 17.8% in all of fiscal 2012.  
  • Pre-tax income for the three months ended October 31, 2013 was $35.9 million, excluding land-related charges and loss on extinguishment of debt, compared with $8.1 million in the fourth quarter of the prior year. For all of 2013, pre-tax income, excluding land-related charges, expenses associated with the debt exchange offer and loss on extinguishment of debt, was $27.7 million compared with a pre-tax loss of $55.0 million in fiscal 2012.  
  • Net income was $32.8 million, or $0.21 per diluted common share, for the fourth quarter of fiscal 2013, compared with a net loss of $84.4 million, or $0.59 per common share, in the fourth quarter of the prior year. For the year ended October 31, 2013, net income was $31.3 million, or $0.22 per diluted common share, compared with a net loss of $66.2 million, or $0.52 per common share, for all of last year.  
  • Deliveries, including unconsolidated joint ventures, were 1,816 homes during the fourth quarter of 2013, up 3.8% compared with 1,750 homes in the same period of the prior year. For the twelve months ended October 31, 2013, deliveries, including unconsolidated joint ventures, were 5,930 homes compared with 5,356 homes during the twelve month period a year ago, an increase of 10.7%.  
  • The dollar value of net contracts, including unconsolidated joint ventures, during the fiscal 2013 fourth quarter decreased 4.5% to $490.5 million compared with $513.4 million in last year's fourth quarter. The number of net contracts decreased 8.9% to 1,315 homes in the fiscal 2013 fourth quarter from 1,443 homes in the prior year's fourth quarter. The dollar value of net contracts, including unconsolidated joint ventures, for all of fiscal 2013 increased 14.6% to $2.20 billion compared with $1.92 billion during all of 2012. The number of net contracts increased 5.8% to 6,177 homes for the year ended October 31, 2013 from 5,838 homes in fiscal 2012.  
  • Contract backlog, as of October 31, 2013, including unconsolidated joint ventures, was $848.4 million for 2,392 homes, which was an increase of 14.3% and 11.5%, respectively, compared to October 31, 2012.  
  • Total interest expense as a percentage of total revenues declined 150 basis points to 6.7% for the fourth quarter of fiscal 2013 compared with 8.2% in the fourth quarter of the prior year. For all of fiscal 2013, total interest expense as a percentage of total revenues declined 250 basis points to 7.8% compared with 10.3% in the prior year.  
  • Total SG&A was $63.0 million, or 10.6% of total revenues, during the three months ended October 31, 2013 compared to $48.7 million, or 10.0% of total revenues, in the fourth quarter of the prior year. The quarter included $8.5 million of unusually high expenses due to a substantial increase in our construction defect reserves based on an annual actuarial study, as well as a reserve for a receivable from a prior year land sale. In fiscal 2013, total SG&A was $220.2 million, or 11.9% of total revenues, compared with $190.3 million or 12.8% of total revenues in the previous year.  
  • Adjusted EBITDA increased to $77.4 million for the fourth quarter ended October 31, 2013 compared to $50.2 million in last year's fourth quarter. During all of fiscal 2013, Adjusted EBITDA was $179.6 million compared with $107.4 million in the prior year.  
  • The contract cancellation rate, including unconsolidated joint ventures, for the three months ended October 31, 2013 was 23%, compared with 23% during the same quarter a year ago.  
  • The valuation allowance was $927.1 million as of October 31, 2013. 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.

LIQUIDITY AND INVENTORY AS OF OCTOBER 31, 2013:

  • During the fourth quarter of fiscal 2013, $125.4 million was spent on land and land development. Homebuilding cash was $324.3 million as of October 31, 2013, including $5.2 million of restricted cash required to collateralize letters of credit, compared to $226.7 million and $289.0 million at the end of July 31, 2013 and October 31, 2012, respectively. In addition to the homebuilding cash, there was $49.2 million of availability under the revolving credit facility as of October 31, 2013.  
  • As of October 31, 2013, the land position, including unconsolidated joint ventures, was 34,462 lots, consisting of 16,311 lots under option and 18,151 owned lots, an increase of 4,843 lots compared with a total of 29,619 lots as of October 31, 2012.  
  • We continued our successful partnership with GSO Capital Partners LP, the credit arm of The Blackstone Group, by announcing a $150 million increase of our land banking arrangement, which brings the total since July 2012 to $400 million.

COMMENTS FROM MANAGEMENT:

"We are pleased to report a year of solid profitability, driven by revenue growth, gross margin improvement and operating efficiencies," stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "Although our sales slowed from July through September due to the adverse impacts of higher mortgage rates, the sequester and the government shutdown, we are happy to report that our sales improved back to prior year levels in October and exceeded last year's levels in November. Entering 2014 with a higher backlog, gross margin and community count, gives us optimism that, excluding any expenses related to early retirement of debt, fiscal 2014 should result in greater levels of profitability and continued leveraging of our fixed costs. Further, we continue to believe that household formations, the primary driver of housing demand, will ultimately lead to increased demand for new homes and we continue to believe that our industry is still in the early stages of a housing recovery."

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