UPDATE 2-Hovnanian sees 2nd-qtr charges up to $275 mln

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NEW YORK, May 5 (Reuters) - Home builder Hovnanian Enterprises Inc (HOV.N: Quote, Profile, Research) said on Monday it expected sharply higher fiscal second-quarter charges and returned to an earlier, higher cash-flow outlook, sending its stock up 3.3 percent.

For the fiscal second quarter ended April 30, Hovnanian expects to incur charges of $225 million to $275 million related to the reduced value of land and inventory due to falling home prices and a deteriorating sales pace.

Hovnanian said it achieved positive cash flow in its fiscal second quarter, one quarter earlier than expected, citing a reduction in inventory investment levels.

It raised the estimate for full-year cash flow to $300 million from $100 million, which it forecast in December. At that time, it cut its outlook from a range of $100 million to $400 million.

"While a positive, we note that Hovnanian's fiscal 2008 improvement is similar to the shift to positive cash flow seen in other builders in 2007 versus 2006," JP Morgan analyst Michael Rehaut said in a research note. "Hovnanian did not generate positive cash flow until the fourth quarter 2007 due to its above average community growth and continues to 'catch up' to its peers." Community growth refers to building additional developments.

During the quarter, the company sold 2,494 homes, 21 percent below last year's levels. Net contracts fell 29 percent to 2,226 homes.

The cancellation rate fell to 29 percent from 38 percent in the previous quarter, and 32 percent a year ago, Hovnanian said.

Hovnanian shares were up 39 cents at $12.06 on the New York Stock Exchange. (Reporting by Ilaina Jonas and Nick Zieminski; editing by Jeffrey Benkoe)