Updated from March 1Hovnanian ( HOV) reported roughly flat fiscal first-quarter earnings and reiterated its full-year earnings forecast, though the company echoed other homebuilders' recent cautious comments about the softening housing market. For the quarter ended Jan. 31, the Red Bank, N.J.-based builder reported net income of $81.4 million, or $1.25 a share, on $1.28 billion in revenue. A year earlier, the builder earned $81.5 million, or $1.25 a share, on revenue of $1.05 billion. According to Thomson First Call, analysts expected earnings of $1.24 a share and revenue of $1.26 billion. The company delivered 3,845 homes in the quarter, compared with 3,266 a year ago. Homebuilding gross margins rose 50 basis points year over year to 24.3%. Hovnanian's new orders rose 11.9% in the quarter, but the company said the housing market is slowing. "During recent months, market conditions in many of our more highly-regulated markets, including California, Florida, Washington, D.C., and the Northeast, have cooled from their previous white-hot levels, with respect to both sales pace and price increases," said Chief Executive Ara Hovnanian in a statement. "This expectation of a healthy but slower pace of growth is reflected in our projections for fiscal 2006 earnings," Hovnanian said, reiterating the company's earlier forecast for full-year earnings of $8.05 to $8.40 a share. Analysts currently expect earnings of $8.10 a share, compared with the company's fiscal 2005 earnings of $7.16 a share. On a conference call Thursday, Hovnanian expressed confidence about its future, while also admitting that gross margins will remain under pressure. Management said that even if margins drop to 2002 levels -- which means 440 basis points below 2005 -- then the company will continue to post EPS growth favorable to other industries. Hovnanian said a slowing real estate market also means that material and labor costs could trend down.
Hovnanian said on the call that it has offered some incentives and discounts in various markets around the country, and when it does, the sales absorption rate has improved. Management acknowledged that competitors' price cutting has been affecting the overall marketplace. "It's part of the reason why we're projecting lower gross margins. Fortunately, a lot of it is due to standing inventory," Hovnanian said. Hovnanian said regulatory and production delays are pushing many of its deliveries into the second half of the fiscal year. For the current quarter, the company forecast earnings of $1.55 to $1.80 a share, below analysts' average estimate of $1.86 a share. The company said it plans to end 2006 with 440 communities. It ended the latest quarter with 371 communities. Both figures exclude joint-venture properties.