Hovnanian Slides to Two-Year Low After Wider Loss Than Analyst Estimated
By Prashant Gopal and Mary Childs – Jun 8, 2011 Hovnanian Enterprises
Inc. (HOV), the largest homebuilder in New Jersey, fell the most in a
year in New York trading after reporting a wider second-quarter loss
than analysts estimated.
Hovnanian’s net loss for the three months ended April 30 widened
to $72.7 million, or 69 cents a share, from $28.6 million, or 36 cents,
a year earlier, the Red Bank, New Jersey-based company said in a
statement yesterday after the close of trading. Analysts predicted a
loss of 55 cents a share, the average of nine estimates in a Bloomberg
survey.
The results `were well short of our (and the Street’s)
expectations on most fronts as the housing market remains under
pressure,’ Vincent Foley and Cedric Morris, analysts with
Barclays Capital Inc. in New York, wrote in a research note yesterday.
The stock fell 12 percent to $2.07 at 4:15 p.m. in New York Stock
Exchange Composite trading, the biggest decline since June 2010. It has
lost 49 percent this year, the worst performance in Bloomberg’s
U.S. homebuilder index.
U.S. homebuilders are struggling with weak demand as unemployment hovers
around 9 percent and foreclosures drag down prices of previously owned
houses. Hovnanian, which specializes in communities of single-family
homes, said the spring selling season was
`disappointing.’
Falling Orders, Margins
Second-quarter revenue declined to $255.1 million from $318.6 million a
year earlier. Net orders tumbled 17 percent to 1,166 homes. The
company’s homebuilding gross margin, a measure of profitability,
dropped to 14.8 percent from 17.3 percent.
The company is likely to have revenue of $265 million to $295 million in
the third quarter, and $320 million to $350 million in the fourth
quarter, Chief Executive Officer Ara Hovnanian said during a conference
call with analysts today.
Bondholders are losing confidence in Hovnanian as the company uses its
cash to buy land in the housing slump. The homebuilder’s cash
and near-cash holdings fell to $353.7 million in the quarter from $783.1
million two years earlier.
The cost to protect the company’s debt with credit-default swaps
ended yesterday at the highest level since Sept. 23, according to CMA,
which is owned by the CME Group Inc. Contracts protecting against the
company’s default for five years increased 2.1 percentage points
today to 37.6 percent upfront as of 12:28 p.m. in New York, according to
the data provider. That’s in addition to 5 percent a year,
meaning it would cost $3.76 million initially and $500,000 annually to
protect $10 million of Hovnanian debt.
Hedge Against Losses
Credit-default swaps pay the buyer face value if a borrower fails to
meet its obligations, less the value of the defaulted debt. The
contracts, which investors use to hedge against losses on corporate debt
or to speculate on creditworthiness, decline as investor confidence
improves and rise as it deteriorates.
`We understand the market’s concern with
liquidity,’Chief Financial Officer Larry Sorsby said during
today’s call.`It is something we are monitoring closely.
However, our internal financial models give us the confidence that we
have sufficient capital to grow our way back to profitability, even in a
flat, non-recovering market.’
The company expects narrower losses in the third and fourth quarters,
CEO Hovnanian said.
To contact the reporters on this story: Prashant Gopal in New York at
[email protected]; Mary Childs in New York at [email protected]
To contact the editor responsible for this story: Kara Wetzel at
[email protected]
From: Baghdasarian