Tuesday, December 20, 2011

Hovnanian Enterprises' CEO Discusses Q4 2011 Results - Earnings Call Transcript - Seeking Alpha

Hovnanian Enterprises' CEO Discusses Q4 2011 Results - Earnings Call Transcript - Seeking Alpha
As you can see on Slide 6, we ended the year at 21.3 net contracts per community just slightly below the level of the past 2 years with a slower beginning of the year and a better ending. For each of the past 4 years, our average sales per community per year is up by more than 50%, compared to our historical normalized average pace of about 45 contracts per year.

These low absorption rates make it more challenging to return to profitability. Nonetheless, we believe we can achieve profitability before sales pays returns to normalized levels.

Hovnanian Enterprises is a major builder of HOA-run subdivisions. On July 15, 2005, their stock peaked at $70.92 per share. Today it closed at $1.50 per share. The transcript from this presentation by CEO Ara Hovnanian is lengthy and detailed, but if you read it carefully you will get a sense of the total devastation that has hit the home building industry. Historically they sell 45 homes per year per subdivision. Last year they averaged 23.3 units sold per subdivision. And check out this sentence: "Our internal projections for the next 2 years assume no improvement in market conditions, so any comp line growth is driven by community count growth." This reminds me of the old joke that "we will lose money on every unit we sell, but we will make it up in volume."

1 comment:

Anonymous said...

I don't understand the statement from Hovnanian.

After reading the full article it seems that they should be claiming that their "average sales per community per year is OFF [or down] by more than 50%", not "up by more than 50%".

(45 - 21.3)/45 = 52.67% DOWN or OFF - not up.

If it had been up by more than 50% from their historical average, they would be doing well in the current climate.

I think this should also say something about the undesirability of HOA homes.