December 19, 2007 / 1:09 PM / 10 years ago

Hovnanian shares tumble 17 percent after results

NEW YORK (Reuters) - Shares of home builder Hovnanian Enterprises Inc (HOV.N) tumbled on Wednesday, a day after the company posted a wider-than-expected loss as the value of its land and inventory continued to deteriorate.

Hovnanian shares fell $1.41, or 17 percent, to $6.99 in afternoon trading on the New York Stock Exchange, where it was one of the top percentage losers. The benchmark Dow Jones U.S. Home Construction Index .DJUSHB was off 1.3 percent.

“The real story this quarter was the weak gross margins and the plethora of charges,” Wachovia analyst Carl Reichardt wrote in a research note.

After the markets closed on Tuesday, Hovnanian reported a net loss of $469 million, or $7.42 per share, for its fiscal fourth quarter ended October 31. Analysts, on average, had looked for a loss of $1.63 per share, according to Reuters Estimates.

A year earlier, Hovnanian reported a net loss of $118 million, or $1.88 per share.

The results included pretax charges of $383 million for the declining values, compared with charges of $322 million in the fourth quarter 2006.

“Unfortunately, we expect another grim spring season as high and rising inventories continue to push home prices lower, further eroding buyers’ confidence,” Bank of America analyst Daniel Oppenheim said in a research note.

The spring selling season is to home builders what the Christmas season is to retailers — the months that generate the bulk of the companies’ sales.

    “Fiscal ‘08 will clearly be a difficult year,” Ara Hovnanian, the president and chief executive, said on a conference call with analysts.

    The Red Bank, New Jersey-based company sees generating about $100 million in cash in fiscal 2008, down from an earlier forecast of $100 million to $400 million. It also said it is renegotiating debt covenants with its lenders.

    As demand for new houses has dried up, the value of the land and other inventory that home builders already have on their books declined. With the U.S. housing market deteriorating, home builders continue to write down the value of these assets and incur charges.

    The U.S. housing market has been languishing for two years, initially sparked by soaring prices that forced buyers out of the market. The unexpectedly steep decline has left a glut of homes on the market, pushed values down, and led to tighter credit and concerns about a wider U.S. economic slowdown.

    Hovnanian’s average selling price fell 3.4 percent from last year, and gross margins plunged 10.35 percentage points to 10.9 percent from 20.4 percent in the fourth quarter of 2006.

    Editing by Dave Zimmerman/Jeffrey Benkoe

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