Builder Hovnanian Enterprises reported a net loss of almost half a billion dollars for the three-month period ending Oct. 31.
Hovnanian recorded a $469 million net loss for the fourth quarter of the 2007 fiscal year, or $7.42 per share. That compares with a net loss of $118 million, or $1.88 per share, in the fourth quarter of the 2006 fiscal year.
Analysts had expected the company to post a quarterly loss of $1.49 per share in fourth-quarter 2007, according to a survey by Thomson Financial. Hovnanian’s stock was trading at $7.24 per share as of 1:07 p.m. ET today, down $1.16 from Wednesday’s closing price of $8.40. The stock price had sunk in November to its lowest level since 2001, falling to $6.75 per share on Nov. 27.
The company reported a net loss of $638 million, or $10.11 per share, for the entire fiscal year in 2007, compared with net income of $139 million, or $2.14 per share, in fiscal-year 2006.
Company officials reported that internal research and consultation with an auditing firm about the application of an accounting rule relating to an anticipated period of cumulative loss led the company to record a $54 million tax expense for the quarter — managers had reportedly anticipated a $162 million tax benefit for the quarter.
The company also reported $383 million in pretax charges for the quarter, including land impairments of $168 million and write-offs of predevelopment costs and land deposits totaling $105 million.
The company projects positive cash flow from operations in excess of $100 million for fiscal-year 2008.
“We have reduced our total land position 47 percent from the peak in April of 2006, and we expect to see this come down even further during fiscal 2008,” said J. Larry Sorsby, executive vice president and chief financial officer for the company, in a statement.
Sorsby said during a conference call this morning that the company has cut its full-time workforce by about 43 percent from peak levels in June 2006, which he described as necessary actions in difficult times. He also said that he expects “virtually the entire industry is going to be in a three-year cumulative loss” period from 2006-08, even if 2008 turns out to be a reasonably profitable year.
Ara K. Hovnanian, company president and CEO, said that the company has terminated and walked from land contracts for about 9,000 lots in the fourth quarter and 18,000 lots for the full year.
“Our industry is currently experiencing a cyclical correction,” he said in a statement. “While the factors that created this downturn are different than any other throughout our 48-year history, we know that stronger demand for new homes will return. What is not known is how long the market will take to rebound.”
The company reported total revenues of $4.8 billion for the 2007 fiscal year, down 21.9 percent compared to revenues in fiscal-year 2006. Fourth-quarter revenues for the fourth quarter fell 20.3 percent compared to the same quarter last year, to $1.4 billion.
The company delivered 13,564 homes with a total sales value of $4.6 billion in fiscal-year 2007, down 24.4 percent compared with 17,940 deliveries with a value of $5.9 billion in fiscal-year 2006.
The reductions of owned lots from July 31-Oct. 31 led to a $597 million decline in total inventory on the company’s balance sheet, according to the earnings announcement, which includes a 13 percent decline in unsold homes and models.
As of Oct. 31, Hovnanian had 431 active selling communities excluding unconsolidated joint ventures, a decline of 18 active communities since July 31.
Hovnanian reported 2,781 net contracts excluding unconsolidated joint ventures in the fourth quarter, down 10.3 percent compared to the same quarter last year. The company’s contract cancellation rate for the fourth quarter, excluding unconsolidated joint ventures, was 40 percent. That compares to a rate of 35 percent in fourth-quarter 2006.
The company reported a backlog of 5,938 homes with a sales value of $2 billion at the close of the fourth quarter, down 31.3 percent compared with a backlog with a sales value of $2.9 billion on the same day last year.
Hovnanian pointed out during the company’s earnings call that new-home prices have taken a major hit, plunging “substantially” in California. He cited examples of 28 to 35 percent declines in the net average selling price of homes in a couple of Hovnanian-built communities in California from December 2006 to October 2007.
In one of these examples, the company lowered the average selling price from $858,240 in December 2006 to $641,240 in October 2007 in one Southern California inland community, and additionally offered $90,000 in incentives.