Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Hovnanian Enterprises Slumped Today

By Timothy Green – Sep 9, 2016 at 11:26AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The home builder came up short of expectations, with write-offs knocking down profitability.

Image Source: Hovnanian Enterprises.

What happened

Shares of home builder Hovnanian Enterprises (HOV 2.60%) 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.

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.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Hovnanian Enterprises, Inc. Stock Quote
Hovnanian Enterprises, Inc.
HOV
$38.66 (2.60%) $0.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.