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Hovnanian Takes a Hit

Shares fall after the builder cuts guidance and says it doesn't yet see a housing bottom.

Hovnanian Enterprises (HOV) - Get Hovnanian Enterprises, Inc. Class A Report swung to a first-quarter loss, as expected, but the homebuilder also cut its fiscal-year guidance and said it can't yet call a bottom to the housing decline.

Shares were trading down $1.37, or 4.5%, to $29.23.

Late Thursday, the builder reported a loss of $57.3 million, or 91 cents a share, for the quarter ended Jan. 31. A year earlier, Hovnanian recorded a profit of $81.4 million, or $1.25 a share.

The latest quarter's results included $93 million in charges related to the company's Fort Myers-Coral operation in Florida, which Hovnanian attributed to a continued decline in sales pace, weak market conditions and increasing cancellation rates during the quarter

Total revenue for the period fell 8.8% to $1.2 billion.

"Most of our markets have begun to show signs of stabilization, but we are not yet confident that we have found the bottom of this housing slowdown," Ara Hovnanian, the company's CEO, said in a statement.

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The builder lowered its 2007 EPS forecast to $1.10 to $1.50, excluding the first-quarter charges, from its previous guidance of $1.50 to $2. After charges, the projection amounts to fiscal 2007 results ranging from break-even to earnings of 40 cents a share.

Bank of America analyst Daniel Oppenheim wrote in a research note that the lowered guidance suggests that buyers' response to Hovnanian's sales incentives in the quarter didn't meet management's expectations.

"We think higher incentives may be necessary to boost sales during the Spring season," he wrote.

Hovnanian's first-quarter net new-home orders fell 23% to 2,570 contracts. In February, however, orders rose 2.6%.

Oppenheim noted that the increase means the company is on track to best his estimate for a 10.7% order decline in the second quarter. The sales rise, though, could have been the result of heavy incentives.

"We think February orders were aided by aggressive incentives to move cancelled homes, especially in Ft. Myers," Oppenheim said.