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U.S. homebuilder Hovnanian Enterprises, Inc. (HOV - Snapshot Report) reported adjusted earnings of 21 cents per share in the fourth quarter of fiscal 2013, surpassing the Zacks Consensus Estimate of 17 cents by 23.5%. Adjusted earnings increased significantly from the prior-year quarter loss of 59 cents on the back of double digit increase in homebuilding revenue and gross margin.

Despite increasing 21.5% year over year, Hovnanian’s fourth quarter revenues of $591.7 million missed the Zacks Consensus Estimate of $599 million by 1.2% due to weak orders in the quarter.  

Homebuilding Revenues and Orders

The number of homebuilding deliveries increased to 1,816 units in the fourth quarter of fiscal 2013, up 3.8% year over year, attributable to a rise in sales incentives in some of the communities.

However, order growth was weak in the fourth quarter 2013. The number of net orders signed was 1,315 in the fourth quarter of fiscal 2013, down 8.9% year over year. Value of net orders signed during the quarter was $490.5 million, up 4.5% year over year.

Management claimed that orders declined due to adverse impact of recent hike in interest rates, the sequester and the government shutdown in October. Another homebuilding company, Toll Brothers, Inc. (TOL - Analyst Report), which reported on Dec 10, 2013, also witnessed slower order growth due to aggressive pricing and mortgage rates hike.

The company’s backlog totaled 2,392 homes as of Oct 31, 2013, up 11.5% year over year. Potential housing revenues from backlog grew 14.3% year over year to $848.4 million.

The company’s homebuilding gross margin of 22.6% grew 430 basis points (bps) year over year and improved 230 bps sequentially, driven by improved pricing. As a percentage of revenues, however, selling, general and administrative expenses increased 60 basis points to 10.6% due to some unusually high expenditure in the quarter.

Fiscal 2013

Hovnanian reported revenues of $1.85 billion in fiscal 2013, up 24.2% year over year. Fiscal 2013 earnings per share were 22 cents, significantly better than the prior year loss of 52 cents. The company opened 91 communities during fiscal year 2013 and closed 71 communities.

Fiscal 2014 Outlook

Hovnanian’s management has a positive outlook for fiscal 2014. They expect both revenue and earnings to increase in the fiscal 2014. The company expects 2014 full year gross margin to remain in the range of 20% to 21%.

Hovnanian holds a Zacks Rank #4 (Sell).

Better-ranked homebuilding companies include Meritage Homes Corporation (MTH - Snapshot Report) and M/I Homes, Inc. (MHO - Snapshot Report). Both the companies carry a Zacks Rank #2 (Buy).

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