Hovnanian expects wider 2nd-quarter loss

May 05, 2007|By Bloomberg News

NEWARK, N.J. -- Hovnanian Enterprises Inc., the worst-performing U.S. homebuilder stock, forecast a wider second-quarter loss yesterday and said the subprime mortgage crisis is exacerbating weakness in the home sales market. Its shares fell 4 percent.

The loss excluding land charges for the three months that ended April 30 is predicted to be about 30 cents a share, the company said. It had predicted a loss of 5 cents to 20 cents a share. Including the charge, the loss may be 45 cents to 50 cents. Analysts had projected a loss, excluding items, of 22 cents a share.

Hovnanian said it expects a pretax expense of as much as $20 million to write down the value of its property and walk away from deposits on parcels of land it doesn't plan to buy. The company delivered 30 percent fewer homes last quarter than a year ago, and saw "exceptionally high cancellations" in the Fort Myers-Cape Coral area of Florida.

"The adverse publicity surrounding the subprime market has further damaged homebuyers' psychology, resulting in decreased demand and leading to continued use of sales incentives," Hovnanian said.

Shares of Hovnanian slid 99 cents to close at $23.58 yesterday on the New York Stock Exchange. The stock has lost 30 percent this year, the worst performance among the 16 members in the Standard & Poor's supercomposite homebuilding index. The company is the sixth-largest homebuilder by revenue.

At least 50 mortgage lenders have halted operations, gone out of business or sought buyers in the past year amid rising borrower defaults. The crisis has led to tighter lending standards just as home prices are falling and made it more difficult for many buyers to enter the market.

Hovnanian delivered 3,196 homes during the quarter, compared with 4,555 a year earlier. Cancellations in the second quarter fell to 32 percent from 36 percent in the first quarter, the company said.

Net contracts for the quarter declined 21 percent to 3,116. Excluding Fort Myers-Cape Coral, the company's cancellation rate was 30 percent and net contracts dropped 17 percent.

Homebuilders' profits are falling as demand for new property has waned. Existing-home sales tumbled 8.4 percent in March. The Commerce Department said sales of new homes rose in March, but builders have called the spring selling season disappointing.

Hovnanian said it will issue its full second-quarter earnings report May 31.

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