Red Bank, NJ-based homebuilder
Hovnanian Enterprises Inc.
) third-quarter fiscal 2013 earnings of 6 cents per share were in
line with the Zacks Consensus Estimate as strong margins offset
the lower than expected top-line performance. Quarterly earnings
were much higher than the year-ago quarter's loss of 5 cents per
Total revenue in the quarter grew 23.6% year over year to
$478.4 million as both the Homebuilding and Financial Services
segments performed well in the quarter. However, revenues missed
the Zacks Consensus Estimate of $499 million by 4.1% due to lower
Behind the Headline Numbers
Hovnanian Enterprises earns revenues from its homebuilding and
financial services segment.
grew 23.7% year over year to $465.5 million, driven by higher
Home sales increased 24.5% year over year to $462.4 million
resulting from the increased orders and contracts owing to a
higher market demand. Supply however, remains limited due to
lower home inventories, both for new and existing homes.
Home prices have thus moved up sharply with the market demand
gaining momentum and supply remaining limited. Land sales and
other revenues amounted to $3.1 million in the quarter, down
34.6% year over year.
The value of net contracts grew 7.9% to $546.9 million, driven
by increased volumes and ASPs. Though numbers of net contracts in
the quarter were up 1.8% year over year to 1,568 homes, it was
19.6% lower than the second quarter of fiscal 2013.
The sequential decline in contracts was due to the moderated
housing demand in some markets during July and August, resulting
from higher mortgage rates, increased home prices and limited
In spite of the recently rising interest rates, they are still
below historical levels and housing is still very much
affordable. The company also believes that the effect of higher
interest rate of is expected to be short term. Hence, it expects
to achieve further profitability in fiscal 2013, on the back of
increasing housing demand, solid backlog position and rising home
Contract backlog (unconsolidated joint ventures included)
totaled 2,893 homes as of Jul 31, 2013, up 18% year over year
from 2,452 homes as of Jul 31, 2012. The value of backlog grew
26.8% year over year to $1.03 billion in the third quarter. The
cancellation rate stood at 18%, better than the prior-year
quarter rate of 21%.
Deliveries (unconsolidated joint ventures included) increased
8.3%year over year to 1,502 homes in the reported quarter. It was
driven by an increase in demand in the homebuilding business.
The average selling price (ASP) of homes delivered stood at
$358,899, up 8% year over year, driven mainly by better pricing
power as housing demand grows and supply declines. The West
region recorded the maximum price hike of 24.2%, followed by
13.7% hike in the Southwest region. Prices increased 12.7% and
13.0% in Mid-Atlantic and Southeast regions, respectively.
segment's revenues climbed 19.4% to $12.9 million in the quarter
driven mainly by increased homebuilding deliveries.
Adjusted homebuilding gross margin expanded 210 basis points
(bps) to 20.3%, led by higher prices and favorable product mix
(increased deliveries from higher margin communities) which
offset headwinds from rising construction costs. Moreover, gross
margins improved 140 bps sequentially.
Selling, general and administrative (SG&A) expenses
increased 17.3% year over year to $56.4 million in the third
quarter of fiscal 2013. SG&A, as a percentage of revenues,
improved 60 bps to 11.8% as the company leveraged its fixed cost
Other stocks in the construction sector that are performing
well and deserve a mention include
Boise Cascade Co.
Meritage Homes Corp.
TRI Pointe Homes, Inc.
). While Boise Cascade has a Zacks Rank #1 (Strong Buy), Meritage
Homes and TRI Pointe Homes both carry a Zacks Rank #2 (Buy).
BOISE CASCADE (BCC): Free Stock Analysis
HOVNANIAN ENTRP (HOV): Free Stock Analysis
MERITAGE HOMES (MTH): Free Stock Analysis
TRI POINTE HOME (TPH): Free Stock Analysis
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