Hovnanian Q2 Loss Widens, Results Miss Estimates

(RTTNews) - Home builder Hovnanian Enterprises, Inc. (HOV) reported Tuesday a net loss for the second quarter that widened from last year, despite revenue growth, reflecting lower home building gross margins and higher expenses.

Loss per share also came in wider than analysts' expectations, and quarterly revenues missed their estimates. Looking ahead, the company sees 2016 as a breakout year for deliveries and revenues, leading to a substantial increase in profitability going forward.

Following the announcement, the company's stock is trading down nearly 12 percent.

"As we discussed on our first quarter conference call, we expected our second quarter gross margin to be adversely affected by incentives and concessions on started unsold homes. However, the impact was greater than we anticipated and we are disappointed with our second quarter results," Chairman, President and CEO Ara Hovnanian said.

The Red Bank, New Jersey-based company reported a net loss of $19.56 million or $0.13 per share for the second quarter, wider than $7.90 million or $0.05 per share in the prior-year quarter.

On average, seven analysts polled by Thomson Reuters expected the company to report a loss of $0.05 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenues for the quarter grew 4.2 percent to $468.95 million from $449.93 million in the same quarter last year, but missed seven Wall Street analysts' consensus estimate of $533.75 million.

Total homebuilding revenues increased to $456.49 million from $440.52 million, and financial services revenues grew to $12.46 million from $9.41 million in the year-ago quarter.

Home deliveries, including unconsolidated joint ventures, increased 3.2 percent from the year-ago quarter to 1,289 homes.

Hovnanian's consolidated net contracts edged down 0.7 percent from last year to 1,796 homes, while consolidated dollar value of net contracts grew 4.7 percent to $700.7 million.

Meanwhile, net contracts for the quarter, including unconsolidated joint ventures, also edged down 0.7 percent from last year to 1,894 homes, and dollar value of net contracts grew 6.8 percent to $750.9 million.

Contract backlog at the end of the second quarter, including unconsolidated joint ventures, stood at $1.23 billion for 3,092 homes, a year-over-year increase of 8.6 percent and 2.0 percent, respectively.

The contract cancellation rate, including unconsolidated joint ventures, for the second quarter was 17 percent, consistent with the rate in last year's second quarter.

The company recorded a 410 basis points year-over-year contraction in home building gross margin, before interest expense and land charges included in cost of sales, to 16.1 percent from last year.

Total expenses for the quarter increased to $499.90 million from $457.14 million in the year-ago quarter.

Looking ahead to fiscal 2016, the company expects it to be a breakout year for deliveries and revenues, which should lead to a substantial increase in profitability as compared to recent years.

"Based on the higher gross margin in our April 30th backlog we are confident that our gross margin for the third and fourth quarters of fiscal 2015 will show sequential increases. While we still feel good about our ability to grow the top line during fiscal 2015 and still expect to generate a solid profit during the fourth quarter, we do not expect it to be sufficient to offset earlier quarterly losses," Hovnanian added.

In Tuesday's regular trading session, HOV is currently trading at $2.80, down $0.37 or 11.67% on a volume of 1.58 million shares.