Hovnanian Reports Profit as Home Prices, Sales Increase

Hovnanian Enterprises Inc. (HOV), the best-performing U.S. homebuilder stock in the past year, reported a profit for its fiscal third quarter as sales and prices increased amid a nationwide housing recovery.

Net income for the three months ended July 31 was $8.5 million, or 6 cents a share, the Red Bank, New Jersey-based company said today in a statement. That matched the average of six analyst estimates, according to data compiled by Bloomberg. A year earlier, earnings of $34.7 million, or 25 cents a share, included the reversal of $37 million of state tax reserves.

While a jump in mortgage rates from near-record lows in May is beginning to affect contracts to buy new U.S. homes, completed deals for builders such as Hovnanian remain strong, according to Robert Curran, a managing director at Fitch Ratings in New York.

“They have had the wind at their back and that’s enabled them, along with a focus on efficiencies, to show healthy improvement similar to other public builders,” Curran said in a telephone interview before Hovnanian’s results were released.

Deals to purchase new homes in the U.S. dropped 13.4 percent in July from the previous month, the Commerce Department said on Aug. 23. The median price rose 8.3 percent from a year earlier to $257,200.

Hovnanian’s revenue increased to $478.4 million in the quarter from $387 million a year earlier. The average selling price was $358,899, up 8 percent. Net contracts climbed 1.8 percent to 1,568 homes and the contract backlog, an indication of future sales, rose 18 percent to 2,893 homes.

Hovnanian has been able to raise prices because inventories of existing homes remain tight, said Brendan Lynch, a homebuilding analyst for Sidoti & Co. LLC in New York.

Tight Inventory

“Their average sales price has been increasing quite significantly,” Lynch said in a telephone interview last week. “The prevalence of negative equity among homeowners is preventing them from selling homes on the resale market, and that’s creating the inventory shortage.”

While rising mortgage rates restrained sales in July and August, the company expects to be profitable for the full fiscal year with “strong results” for the fourth quarter, Chief Executive Officer Ara Hovnanian said.

“Undoubtedly, a slight decline in consumer sentiment and the rise in mortgage rates during the same period that we’re very aggressive in our price increases have affected sales and took away some of the sense of fire or urgency,” he said on a conference call with analysts. “However, we’re confident that any hesitancy our consumers have seen or felt were active with the higher rates will be a temporary bump in the road to housing recovery.”

Hovnanian rose 2.2 percent to $5.15 today. The shares gained 63 percent in the past 12 months, compared with a 14 percent advance in the 14-company Bloomberg Industries homebuilding index.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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