Hovnanian Reports a Narrower Loss as Sales of Homes Rise

Hovnanian Enterprises Inc., the best-performing U.S. homebuilder stock in the past 12 months, reported a narrower loss for its fiscal first quarter as sales and orders increased amid a housing rebound.

The net loss for the three months ended Jan. 31 was $11.3 million, or 8 cents a share, compared with $18.3 million, or 17 cents, a year earlier, the Red Bank, New Jersey-based company said today in a statement. The average of eight analyst estimates was for a loss of 10 cents a share, according to data compiled by Bloomberg.

Hovnanian, the largest homebuilder in New Jersey, has been working to cut expenses and add more communities to take advantage of rising demand for new homes. Relatively high debt costs have made it more difficult for the company to be consistently profitable, said Steve Blitz, senior homebuilder analyst at ITG Investment Research Inc. in New York.

“The upturn has helped Hovnanian stay in business,” Blitz said in an interview before earnings were reported. “What’s important now is how can they accelerate the growth of their business such that they can reduce their debt burden.”

Hovnanian fell in New York trading after reporting operating margins that trailed some analysts’ estimates. The homebuilding gross margin, excluding interest related to homes sold, was 17 percent in the fiscal first quarter, compared with 18.3 percent in the previous three months and 16.5 percent a year earlier.

Margins ‘Underperformed’

“Although the quarter was better on a year-over-year basis, they underperformed a bit on many operating metrics,” Megan McGrath, an analyst at MKM Partners LLC, said in an e-mail. She had estimated margins of 18 percent, while Joel Locker, an analyst with FBN Securities Inc. in New York, said he had expected margins to be 18.6 percent.

Hovnanian dropped 2.6 percent to $5.94 at the close of trading. The stock has gained 148 percent in the past 12 months, compared with a 97 percent increase for the 13-company Bloomberg Industries homebuilders index.

The decline in margins from the previous quarter was a “temporary setback” related to “choppiness” and fixed overheads spread out among lower deliveries, typical for the first quarter, Chief Executive Officer Ara Hovnanian said today on a conference call with analysts.

“We are optimistic that the recent increases in net contracts we have reported will continue and could lead to our best spring selling season in years,” he said.

Revenue Rises

Revenue increased to $358.2 million from $269.6 million a year earlier. Net contracts climbed 25 percent to 1,344 homes, the company said. The contract backlog, an indication of future sales, rose 33 percent to 2,301 homes.

The company will return to profitability this fiscal year and deliveries, revenue and gross margins will increase from fiscal 2012 as long as “there are no adverse changes to current market conditions,” Hovnanian said in today’s statement.

Demand for new houses has climbed as inventories of existing homes have tightened. Purchases of new homes, logged when contracts are signed, jumped in January to a 437,000 annual rate, the fastest pace since July 2008, the Commerce Department said on Feb. 26.

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