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Florida Follies Hit Hovnanian

The homebuilder sees big charges.

Hovnanian (HOV) - Get Hovnanian Enterprises, Inc. Class A Report guided higher for the first quarter but said the quarter will be hit by $90 million in inventory and impairment charges.

The Red Bank, N.J., homebuilder said it expects to make 20 cents a share for the quarter before the effect of the charges, above its prior guidance of a profit of 5 cents to 10 cents. The company said first-quarter contracts fell 23% from a year ago.

The charges are tied to its operations in Fort Myers-Cape Coral, Fla., due to a continued decline in sales pace and general market conditions, as well as increasing cancellation rates, during the quarter.

In addition, the company estimates that it will incur about $8 million of charges related to land impairment and write-offs of predevelopment costs and land deposits in other markets during the first quarter. These charges are included in the company's preliminary earnings estimate for the first quarter.

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In the Fort Myers-Cape Coral market, the company primarily targets homes designed for first-time homebuyers. This market continues to face increasing resale listings, including many home listings that were recently constructed and purchased by investors. Most of the company's other markets have been experiencing a reduction in resale listings over the past few months.

Excluding the Fort Myers-Cape Coral operations, consolidated net contracts were down 2.3% when compared to last year's first quarter. Companywide, cancellations for the first quarter were 36% of gross contracts, an increase from a rate of 35% reported in the fourth quarter of 2006. However, excluding the results from the company's Fort Myers-Cape Coral operation, the contract cancellation rate was 29% for the first quarter of 2007.