Hovnanian Surprises with Profitable Second Quarter

Andrew Klips  |

Hovnanian Enterprises, Inc. (HOV) showed that the housing industry is holding a steady course to recovery by reporting a second quarter profit against analyst expectations of a net loss as deliveries and contract backlog jumped and gross margin widened.

The Red Bank, New Jersey-based homebuilder said on Wednesday that revenue for the quarter ended April 30 totaled $423.0 million, up 23.8 percent from $341.7 million in the same quarter last year.  Net income was $1.32 million, or 1 cent per share, compared to $1.8 million, or 2 cents per share, in the year prior quarter.

Wall Street was expecting a net loss of 5 cents per share on revenue of $408.6 million.

Deliveries, including unconsolidated joint ventures, were 1,424 homes for the second quarter of fiscal 2013, up 18.0 percent from 1,207 homes in the second quarter of the prior year.

At the end of the quarter, contract backlog, including unconsolidated joint ventures, was $1,024.6 million for 2,827 homes, representing an improvement of 34.3 percent and 23.0 percent, respectively, compared to last year’s quarter.

Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, increased 150 basis points to 18.9 percent from 17.4 percent.

The company said net contracts per active selling community rose to 10.3 during the quarter, the highest level since the fourth quarter of 2005.

"We raised home prices in many of our communities across the country, which have more than offset any increases in labor or material costs we have experienced to date,” said Ara K. Hovnanian, chairman, president and chief executive at Hovnanian.

Hovnanian added that, assuming the markets remain stable and excluding any costs related to early retirement of debt, that the company should be profitable for 2013.  Through the first six months of fiscal 2013, the company has reported a net loss of $9.99 million.

The homebuilding market has produced stellar returns in the past year as it appears the industry finally hit bottom and is now contributing to the nation’s economy.  Dwindling inventories of pre-owned homes, low interest rates and banks finally loosening the reigns a bit on lending are helping drive new home construction.  Increasing values of houses are also helping give homeowners that confidence to trade-up to a newer house.

Shares of HOV have risen more than 200 percent in the past 12 months.  With the better-than-expected earnings report today, shares have jumped more than 6 percent in early trading to around $6.35.

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