Hovnanian Q3 Results Miss Estimates, Sees Improvement

(RTTNews) - Home builder Hovnanian Enterprises, Inc. (HOV) reported Monday a profit for the third quarter that plunged from last year, which was boosted by hefty income tax and debt extinguishment gains. Both earnings per share and quarterly revenues missed analysts' expectations.

Looking ahead, the company expects strong fourth-quarter results and continues to project profitability for fiscal 2013, citing the anticipated increased demand for new homes.

"We were pleased that we were able to raise home prices, grow revenues and increase our gross margin during the third quarter of fiscal 2013. Our emphasis on raising home prices combined with concerns over rising mortgage rates and weakened consumer confidence dampened our home sales during July and August of 2013," Chairman, President and CEO Ara Hovnanian said.

The Red Bank, New Jersey-based company reported net income of $8.47 million or $0.06 per share for the third quarter, sharply lower than $34.68 million or $0.25 per share in the prior-year quarter.

The results for the year-ago quarter included a $36.5 million income tax benefit and $6.2 million gain on extinguishment of debt.

On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.07 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenues for the quarter grew 23.6 percent to $478.36 million from $387.01 million in the same quarter last year, but missed eight Wall Street analysts' consensus estimate of $504.70 million.

Total homebuilding revenues increased to $465.48 million from $376.22 million, and financial services revenues grew to $12.88 million from $10.79 million in the year-ago quarter.

Hovnanian's net contracts for the quarter, including unconsolidated joint ventures, rose 1.8 percent from last year to 1,568 homes, and dollar value of net contracts also increased 7.9 percent. Home deliveries, including unconsolidated joint ventures, increased 8.3 percent from the year-ago quarter to 1,502 homes.

Contract backlog at the end of the third quarter, including unconsolidated joint ventures, stood at $1.03 billion for 2,893 homes, a year-over-year increase of 26.8 percent and 18 percent, respectively.

The contract cancellation rate, including unconsolidated joint ventures, for the third quarter was 18 percent, compared with 21 percent in last year's third quarter.

The company recorded a 210 basis points year-over-year improvement in home building gross margin, before interest expense and land charges included in cost of sales, to 20.3 percent. It also reduced its total selling, general and administrative expenses ratio by 60 basis points from last year.

Looking ahead to fiscal 2013, the company said it continues to project profitability for the full-year 2013 and strong results for the fourth quarter, excluding any expenses related to early retirement of debt.

"We believe we are in a period where consumers are adjusting to current home prices and mortgage rates and remain confident that the combination of pent-up housing demand and the positive long-term demographic trends for housing will drive increased demand for new homes going forward," Hovnanian added.

In Monday's regular trading session, HOV is currently trading at $5.23, up $0.19 or 3.77% on a volume of 3.34 million shares. In the past 52-week period, the stock has been trading in a range of $3.07 to $7.43.