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Instant Analysis: Hovnanian Enterprises Misses on Q1 Revenue, EPS

By Eric Volkman – Mar 11, 2016 at 4:05PM

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The home builder posts a deepening, and deeper-than-expected, net loss for the period.

What happened?
Home builder Hovnanian Enterprises (HOV -1.00%) has had a tough time of it lately. In its most recent negative development, the company delivered a Q1 that came in well under expectations.

This was in spite of the fact that its revenue grew by 29% on a year-over-year basis to $576 million. The bottom line went in the opposite direction, though, with net loss deepening to more than $16 million ($0.11 per diluted share), from Q1 2015's $14 million.

Image source: Paul Brennan via

On average, analysts anticipated that Hovnanian would post revenue of $580 million and a net loss of $0.03 per share.

The company has elected to retreat from some markets, such as San Francisco, following "much analysis of our more challenging divisions and our desire to be a more significant player in our markets with better performance," CEO Ara Hovnanian said on the conference call. Charges related to the company's exit from the Minnesota market amounted to nearly $12 million during the quarter.

Does it matter?
Those charges made a big difference; without them, Hovnanian's loss would have been $1.5 million, a big improvement over the year-ago quarter's adjusted $17.5 million bottom-line shortfall.

Still, the company booked a loss. Home building is expensive, no matter how otherwise successful the economy, and Hovnanian is struggling with its finances. Although it's managed to reduce its indebtedness some, its long-term borrowings still approach the $2 billion level; its revenue for the entirety of fiscal 2015, meanwhile, was just over that mark.

Investors are not going to like having to swallow another net loss -- the company's fourth in the last five quarters. And although it's actually a positive development, the market won't look kindly on Hovnanian's retreat from markets that are lucrative for others. We can expect the company's stock to take a hit from this unhappy set of figures.

Eric Volkman has no position in any stocks mentioned. Nor does The Motley Fool. 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.

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