Hovnanian Misses Estimates, Shows Growing Sales and Home Prices

Andrew Klips |

Shares of Hovnanian Enterprises Inc. (HOV) are not deterred from rising in Monday trading after posting less profit and revenue than expected during the fiscal third quarter.  Like most other homebuilders, Hovnanian has seen shares slide recently after an incredible climb in 2012 as the housing market continues to recover and interest rates rise.

For the quarter ended July 31, the Red Bank, New Jersey-based company reported total revenue of $478.4 million, up 23.6 percent compared to the year prior quarter.  Net profit was $8.5 million, or 6 cents per share, versus $34.7 million, or 25 cents per share, in the third quarter last year.  Last year’s quarter benefited 26 cents per share, or $42.7 million from a tax benefit and debt-extinguishment gains.

Wall Street expected earnings per share of 7 cents on revenue of $510.0 million.

Adjusted homebuilding gross margin, which doesn’t count interest expense or land charges in the cost of sales, rose 210 basis points to 20.3 percent in the third quarter, compared to last year’s quarter.  It was also up by 140 basis points from the second quarter.

Deliveries were up 8.3 percent at 1,502 homes from 1,387 homes during Q3 2012.  For the first nine months of the year, deliveries rose 14.1 percent to 4,114 homes.

The dollar value of net contracts improved 7.9 percent to $546.9 million compared to $507.0 million in the third quarter last year.  The number of net contracts increased 1.8 percent to 1,568. 

Contract backlog at the end of the quarter was $1.03 billion for 2,893 homes.  That’s up 26.8 percent and 18.0 percent, respectively, compared to the end of the same quarter in 2012.  The cancellation rate dropped to 18 percent, compared to 21 percent last year.

Selling, general and administrative costs were $56.4 million, or 11.8 percent of revenue.  In last year’s quarter SG&A expenses were $48.1 million, or 12.4 percent of revenue.

"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,” Ara K. Hovnanian, chairman, President and Chief Executive Officer, said.  The Hovnanian chief believes that the company is in a time where homebuyers are adjusting to higher prices and interest rates, but that pent-up demand will continue to drive things going forwards.  Excluding any cost associated with retiring debt, the company expects to be profitable in 2013.

July was a soft month for new home sales in the U.S.  The Commerce Department report in August that contracts for new homes declined 13.4 percent in July from June, although the median price of a home increased 8.3 percent.

Shares of HOV closed the day ahead by 2.2 percent at $5.15, but are down about 26 percent in 2013.  In 2012, shares surged about 400 percent.  Other homebuilders had a strong day amid a broad market rally.  PulteGroup ($PHM) rose 7.5 percent to $16.63 and KB Home (KBH) advanced 5.3 percent to close at $17.10.

 

(image courtesy of Flickr)

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Companies

Symbol Name Price Change % Volume
KBH KB Home 17.21 -0.05 -0.29 3,806,003
HOV Hovnanian Enterprises Inc. Class A 2.50 0.13 5.49 3,081,997
PHM PulteGroup Inc. 19.60 -0.25 -1.26 5,453,225
RUSMF Russel Metals Inc. 20.77 0.00 0.00 100

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