This is a summary of the first quarter fiscal 2009 earnings call as presented by Hovnanian Enterprises (HOV) on March 11, 2009
Management
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President, Chief Executive Officer & Director: Ara K. Hovnanian
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Chief Financial Officer, Executive Vice President & Director:J. Larry Sorsby
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Senior Vice President & Chief Accounting Officer: Paul W. Buchanan
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Vice President and Corporate Controller: Brad O''Connor
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Vice President of Finance: David Valiaveedan
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Director of Investor Relations: Jeffrey T. O’Keefe
Key Investors Issues
- After tax loss was $178.4 million, or $2.29 per common share.
- At January 31, 2009, homebuilding cash was $842.6 million and the balance on the revolving credit facility was zero.
- Net contracts, excluding unconsolidated joint ventures, declined 36% to 961 homes compared with last year''s first quarter.
First Quarter Highlights
Net contracts per community increased for the first time year-over-year in years.
- The cancellation rate decreased to 31%. This is solidly below the 38% for last year''s same period and well below the high water mark of 42% that recorded in the fourth quarter of 2008.
- Deliveries in the first quarter of 2008 included about 1,345 homes delivered from the Fort Myers/Cape Coral operation.
- Excluding these deliveries total revenues were down 53% and deliveries were down approximately 47% compared to a 66% decline for both deliveries and revenues with the 2008 Fort Myers included.
Hovnanian Enterprises purchased $53.2 million of face value of debt for $14.7 million in cash and exchanged $71.4 million of unsecured notes for about $29.3 million of secured notes.
- These transactions resulted in an $80 million pre-tax gain from debt extinguishment.
- In February monthly sales exceeded 500 for the first time in six months. Additionally, contracts per community for February were more than double what they were in the months of October, November or December.
- Although the firm is rebounding sequentially from low levels for new net contracts since Mid September when the deepening financial crisis entered the most recent stage of this recession, the year-over-comparisons are still off significantly.
- These trends really suggest that there is some level of demand for new homes despite all of the uncertainty regarding the economy.
Net contracts are down 36%.
- Despite cash flow being the primary driver in almost every decision that is made in Hovnanian Enterprises, the firm is only slightly cash flow positive.
- Through the end of the period, the firm has mothballed approximately 9,500 lots in 65 communities. 13 communities were mothballed during the most recent quarter.
- The book value for these communities as $531 million net of an impairment balance of $305 million. Hovnanian Enterprises walked away from 2,390 lots.
As of January 31 2009 the firm''s total lots were down 69% from the peak that was reached in April 2006.
- Hovnanian Enterprises delivered approximately 1,200 homes and sold about 200 lots.
- Offsetting these reductions, the firm took down about 250 lots and the balance was an increase in the number of lots due to the redesign of several communities.
- Option lots are down 83% from the peak in April of 2006. The dollars written off from walking away from these options are only a fraction of the impairments taken on owned land.
Of the 23,000 lots that the firm owns at the end of the first quarter;
- Approximately 47% of these were 80% or more finished, 17% had 30% to 80% of the improvement costs already in place and the remaining 36% were less than 30% finished. - Land prices should follow a similar pattern to that of home prices as banks aggressively lower the sales price of foreclosed homes to get them off their books.
- In addition to reducing its land supply Hovnanian Enterprises continues to make adjustments to staffing levels based on current levels of activity.
Hovnanian Enterprises has also reduced its staffing levels by 69% from the peak level of associates in June of 2006.
- Its community count is down 45% from the peak and the pace per community is at historical low levels. So, the 69% reductions in staffing levels seem to make sense.
- Absolute dollars spent on SG&A are down 16% year-over-year however, total revenues are down 66% year-over-year.
- So the percentage of total SG&A to revenues jumped 27%, much higher than anything seen in many years.
Hovnanian Enterprises suspended the company''s 401K matching contributions and has limited the potential bonus that any associate can get to no more than 50% of the already low 2008 levels.
- Even though traffic and sales have exhibited some seasonal pick up, sales per community still remain near all time lows.
