Hovnanian Enterprises (HOV, Financial) has been witnessing a tough housing market environment since last year. Further, the initial seven months of this year had been difficult. On an average, starting December 2013 until June 2014, Hovnanian registered only two months with healthy year-over-year results and contrastingly five months with poor comparisons. It witnessed greater healthy trends starting July to November, with just one declining monthly comparison and four rising monthly comparisons.
A look at the performance
In November, Hovnanian declared a 15% increase in the dollar amount of net contracts on year-over-year basis that include unconsolidated joint ventures and 25% expansion in the dollar amount of consolidated net contracts. These significant data signify the robust position of the company amid a tough housing environment.
In November itself, Hovnanian recorded a 10% increase in monthly net contracts per community to two as compared to just 1.8 during the same period last year. This is believed to mark a positive trend for the fiscal year 2015.
Although the sales pace per community was unsatisfactory, the expansion of the community count resulted in the rise of the complete level of net contracts and dollar amount of net contracts for both the fourth quarter and the entire year.
There was a 15% increase in the dollar amount of net contracts to $512 million for the quarter even though sales pace per community increased slowly.
Hence, although the housing demand remains poor in 2015, the higher community count achieved to date coupled with the extra communities being planned to be launched is estimated to position it robustly in achieving superior levels of home sales in 2015.
Hovnanian has continuously expanded its overall community count since fiscal 2012 ending. In fiscal 2014, Hovnanian introduced 98 new communities and shut down 89 previous ones.
Expanding the portfolio
By October 31, 2014, the community count of Hovnanian increased to 201 communities as compared to 192 communities during the fiscal 2013. Thereby, Hovnanian for the first time since 2009 achieved its total community count of more than 200, and it estimates further growth in community count in the fiscal year 2015. Moreover, its innovative $250 million bond contribution in the previous month is estimated to accelerate the expansion of its community count in the future. Also, the dollar amount of its backlog has expanded compared to the previous year depending on the growth in its net contracts, community count and its average selling price.
Hovnanian’s backlog dollar amount enhanced by 12% by the end of this year and increased from $762 million in the previous year to $856 million this year. The number of homes in backlog increased to 2,229 this year from 2,167 in the previous year. This backlog expansion coupled with the increase in community count promotes Hovnanian to exceedingly increase its top line growth, going forward.
Conclusion
Finally, the demographics look favorable, and consumers are estimated to purchase homes at an accelerated pace in the future. Hovnanian is also very well positioned to satisfy the expanding long-term demand for the households in the U.S. with the growing population and comparatively fewer homes being built to date, opening a strong opportunity for Hovnanian.
