Hovnanian Enterprises Q4 Profit Surges On Higher Revenues, Tax Benefit

(RTTNews) - Home builder Hovnanian Enterprises, Inc. (HOV) on Wednesday reported a surge in profit for the fourth quarter from last year, reflecting a tax benefit and higher revenues that helped offset a decline in homebuilding gross margin.

Ara Hovnanian, Chairman of the Board, President and Chief Executive Officer said, "Although we generated growth in revenues and achieved our second consecutive year of profitability, 2014 has been a disappointing year for the housing industry and Hovnanian. During 2014 both Hovnanian and the industry experienced a decline in sales pace per community versus 2013 and that slower pace remains substantially below normal annual levels."

The Red Bank, New Jersey-based company's net income for the fourth quarter was $322.46 million or $1.95 per share, up from $32.82 million or $0.21 per share in the prior-year quarter.

The latest quarter's results include a non-cash tax benefit of $285.1 million from the reduction of the company's valuation allowance for its deferred tax assets.

On average, eleven analysts polled by Thomson Reuters expected the company to report earnings of $0.21 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenues for the quarter grew 18 percent to $698.39 million from $591.69 million in the same quarter last year and beat analysts' consensus estimate of $646.77 million.

Total homebuilding revenues for the quarter increased 18 percent from last year to $684.59 million, while financial services revenues grew 10 percent to $13.80 million.

However, the company recorded a 330 basis points year-over-year decline in homebuilding gross margin for the quarter, before interest expense and land charges included in cost of sales, to 19.3 percent.

Home deliveries, including unconsolidated joint ventures, increased 5.5 percent from the year-ago quarter to 1,916 homes.

Net contracts for the quarter, including unconsolidated joint ventures, increased 2.7 percent from last year to 1,350 homes, while the dollar value of net contracts rose 8.4 percent to $531.91 million.

The company's contract backlog at the end of the quarter, including unconsolidated joint ventures, stood at $904.97 million for 2,341 homes, a year-over-year increase of 6.7 percent and decline of 2.1 percent, respectively.

The contract cancellation rate, including unconsolidated joint ventures, for the quarter was 22 percent, compared with 23 percent in the prior-year quarter.

For fiscal 2014, Hovnanian Enterprises net income was $307.14 million or $1.87 per share, up sharply from $31.30 million or $0.22 per share in the prior year. The latest year's results also the include non-cash tax benefit of $285.1 million from the reduction of the company's valuation allowance.

Total revenues for the year rose 11 percent to $2.06 billion from $1.85 billion last year.

Street expected the company to report earnings of $0.13 per share for the year on revenues of $2.01 billion.

Ara Hovnanian said, "Going forward, we are focused on growing our revenues so that we will be able to leverage our fixed SG&A and interest costs, which would help drive increased profitability. We continue to believe the housing industry remains in the early stages of a recovery."

HOV is trading at $4.11, up $0.21 or 5.45 percent on a volume of 1.09 million shares.