Why Shares of Hovnanian Enterprises Slumped Today

By Markets Fool.com

Image Source: Hovnanian Enterprises.

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What happened

Shares of home builder Hovnanian Enterprises (NYSE: HOV) slumped on Friday following the company's fiscal third-quarter report. The company missed analyst estimates for both revenue and earnings, leading investors to push the stock down 13% by 10:45 a.m. EDT.

So what

Hovnanian reported third-quarter revenue of $716.9 million, up 32.6% year over year, but $15 million below the average analyst estimate. Consolidated delivered homes totaled 1,574 during the quarter, up 11.8% year over year. The number of deliveries increased in the Northeast, Southwest, and West, while decreasing in the mid-Atlantic, Midwest, and Southeast regions.

Hovnanian posted a net loss of $0.5 million during the quarter, roughly break-even on a per-share basis, up from a loss of $0.05 per share during the prior-year period. Analysts were expecting a profit of $0.06 per share. Write-offs related to inventory impairment and land options reduced pre-tax income by $1.56 million during the third quarter and by $22.9 million during the first nine months of the fiscal year.

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Hovnanian expects to produce between $2.7 billion and $2.9 billion of revenue for the full fiscal year, with adjusted EBITDA between $200 million and $250 million and pre-tax profit excluding one-time charges between $25 million and $35 million.

Now what

CEO Ara Hovnanian recognizes that the company's performance needs to improve:

"However, we are fully aware that there is even more work to do in order to return the company to higher levels of sustainable profits. We are anticipating a solid fourth quarter with income before income taxes, excluding land related charges, gains or losses on extinguishment of debt and other non-recurring items such as legal settlements, expected to be between$32 million and $42 million."

With Hovnanian coming up short of expectations, investors punished the stock.

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