Hovnanian Swings To Profit As Sales Jump

Hovnanian Enterprises Inc. (HOV) swung to a fiscal second-quarter profit on broad-based sales growth as the home builder said it believes the industry is in the early stages of a recovery.

Shares were up 19% to $2.03 in recent trading as revenue easily topped estimates. The stock is up 40% so far this year.

The company sold more homes per community in April than any month since 2006, except for a sales promotion in September 2007, Chief Executive Ara K. Hovnanian said.

"The sales improvements we have experienced are fairly wide-based in terms of geography, price points and buyer profiles," Mr. Hovnanian said.

Like most of its peers, Hovnanian has struggled as a glut of bargain-priced homes has sapped demand for new houses. Hovnanian's recovery from the recession has also been hobbled by high domestic unemployment and tightened lending standards.

But the company has previously noted that conditions are improving, citing a sustained growth in the number of contracts, and stabilizing prices. In the latest quarter, contracts increased 52% to 1,775 homes. Contract backlog rose 48% to 2,298 homes, with a sales value of $762.8 million, an increase of 49%.

Based on contract growth, Mr. Hovnanian said the home-building industry appears to be entering the early stages of a recovery.

For the quarter ended April 30, Hovnanian, one of the nation's largest home-building companies, reported a profit of $1.8 million, or two cents a share, compared with a prior-year loss of $72.7 million, or 69 cents a share. The latest quarter included a $27 million gain on debt extinguishment, while the prior-year quarter included a $16.9 million loss on inventory impairment and land option write-offs.

Revenue jumped 34% to $341.7 million.

Analysts polled by Thomson Reuters most recently expected a 32-cent loss on revenue of $299 million.

Home-building gross margin widened to 14.3% from 9.1%, including interest.

Write to Kristin Jones at [e-mail]