Hovnanian's Florida Burn
Hope is hard to come by for homebuilders these days. After Hovnanian Enterprises (HOV) warned investors that the slowdown might not be over, investors sold the stock on Mar. 9. The Red Bank (N.J.)-based homebuilder announced a quarterly loss that showed a severe fall-off in Hovnanian's Fort Myers-Cape Coral (Fla.) market and sales that continue dropping.
Hovnanian had a net loss of $57.3 million during the three months ended Jan. 31, compared to earnings of $81.4 million during the same period last year. The housing market plummeted in Fort Myers-Cape Coral, which caused Hovnanian to take $93 million of pretax charges. The company said that before giving effect to the Fort Myers-Cape Coral charges, pretax earnings for the first quarter were $26.7 million, or 20 cents a share.
Buyers shook their heads more often than last year; the company's total revenues fell 8.8% year over year to $1.2 billion during the January quarter. And the value of homes under contract at quarter's end also declined sharply: Contract backlog as of Jan. 31 (excluding unconsolidated joint ventures) was 7,800 homes with a sales value of $2.7 billion, vs. 12,096 homes with a $4.0 billion value one year earlier.
But at least the company's contract cancellation rate, excluding joint ventures, amounted to 36% during the January quarter, close to the 35% experienced during the same period last year.
Hovnanian has battled its setbacks by lowering prices to entice customers, until recently. "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," CEO Ara K. Hovnanian says.
Before the impact of the Fort Myers-Cape Coral debacle, Hovnanian expects between $1.10 and $1.50 earnings per share during the year ending January, 2008; for the quarter ending in May, the company thinks it will have a loss between 5 and 20 cents per share, compared to EPS of 20 cents during the January quarter. "Our fiscal 2007 earnings will thus be significantly weighted to the fourth quarter," the CEO said.
Hovnanian isn't the only one in the industry who's feeling down. At an industry conference sponsored by Citigroup earlier this week, the homebuilder D.R. Horton's (DHI) CEO Donald Tomnitz said 2007 "is going to suck" for the home-building business, according to MarketWatch.
Investors haven't been in the mood to give the benefit of the doubt. They sold Hovnanian 3.6% to $29.51 per share on the New York Stock Exchange on Mar. 9. Other industry players were lower as well, with DR Horton (DHI) down 1.1%, KB Home (KBH) slipping 1.6%, and Centex (CTX) losing 1.2%.
Hovnanian is trying to keep his chin up. "Although conditions in the housing market remain challenging, we have been through many downturns in the housing industry during almost five decades of homebuilding, and we are confident we will emerge from the current slowdown with a solid financial footing," the CEO said.