Hovnanian Tops Tempered Views

The builder backs its recently lowered guidance.
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Hovnanian Enterprises

(HOV) - Get Report

reported second-quarter earnings Wednesday that beat both its own and Wall Street's lowered projections. But the homebuilder's guidance suggests full-year earnings will be more heavily weighted to the fourth quarter than analysts currently expect.

For the second quarter ended April 30, Hovnanian reported a profit of $101 million, or $1.55 a share, down from $106.1 million, or $1.62 a share, a year earlier. Analysts, on average, expected earnings of 1.43 a share, according to Thomson First Call.

The earnings topped Hovnanian's May 1 estimate of $1.40 to $1.50 a share, which was

lowered from its earlier forecast of $1.55 to $1.80. At the time, the company said it was experiencing slower sales, higher cancellations and production delays.

The company reported a 19% decline in net new-sales contracts for the second quarter to 4,342 units. Total revenue rose to $1.57 billion from $1.21 billion, above analysts' projection of $1.35 billion.

Hovnanian maintained its full-year guidance for EPS of $7.20 to $7.40, which in May was cut from a range of $8.05 to $8.40. Analysts currently expect earnings of $7 a share for the year.

For the third quarter, Hovnanian projected EPS of $1.40 to $1.50, well below the $1.75 that analysts expect. That implies that much of the company's ability to meet projections for the year will depend on fourth-quarter results.

"In the near term, we continue to experience a more challenging sales environment in most of our markets when compared with conditions over the past few years," CEO Ara Hovnanian said in a statement.

"However, we believe the slowdown has been affected primarily by a sharp increase in investor resale inventory in some of our markets and community locations, combined with much more cautious buyer sentiment."

Because of the cooling housing market, Hovnanian said it has renegotiated land-option contracts on several parcels -- primarily those purchased in the last 12 months that are no longer as profitable. The company also walked away from about $5.6 million of deposits on land-option contracts that couldn't be negotiated. This resulted in a charge of 5 cents a share in the latest quarter.

In after-hours trading, shares of Hovnanian rose 1.8% to $32.40, which is 1.07 times book value. The stock hit a 52-week high of $73.40 last summer.