Hovnanian Enterprises, Inc. Reports Another Net Loss as Expenses Rise

Despite strong revenue growth, this morning Hovnanian Enterprises reported a net loss of $7.9 million, or $0.05 per share, for the three months ending April 30.

Revenue increased by 6.4% to $450 million during the second quarter of the 2014 fiscal year for the homebuilder. However, expenses at Hovnanian Enterprises came in at $457 million for the quarter, which was a 7.5% increase over the second quarter of last year.

"We launched our national sales campaign, Big Deal Days, in March and were encouraged by the 728 net contracts signed during the month of March 2014, the highest level of monthly net contracts since April 2008," said Chairman, President and CEO Ara Hovnanian in the company's press release. "However, our sales pace during April and May was choppy and the total monthly sales pace per active selling community in both months fell short of last year's levels."

Hovnanian Enterprises did see impressive growth in the gross margin of its homebuilding efforts, which expanded from 18.9% to 20.2%, however its loss resulted in increased selling, general and administrative expenses, which rose by $10 million to $47.8 million.

In addition to its strong growth in revenue, Hovnanian also saw significant rise to the value of its backlog of contracts, which rose from $865 million to $1.05 billion, a gain of 21% year-over-year. In total, the homes in backlog increased to nearly 2,800, a gain of 13.6%.

While the loss was discouraging, the CFO of Hovnanian, Larry Sorsby, noted in the press release the reason behind this increase in expenses was the result of increased investments in new communities in an effort to "drive future revenue growth."

In addition the CEO added; "Given the increases in our consolidated net contracts, community count and backlog, we currently anticipate continued growth in revenues resulting in profitability during the second half of fiscal 2014. We expect to be profitable for all of fiscal 2014, but our profitability is expected to be more back-end weighted than it was in fiscal 2013."

The company has reported a total loss of $32.4 million through the first six months of its 2014 fiscal year, and while another quarterly loss is somewhat troubling, it's encouraging to know the CEO suggests the increased contracts and backlog has resulted in the home builder "firmly" believing "we are in the early stages of a housing recovery."