Hovnanian Warns of Weaker Profit
Because of Housing Slowdown

The home builder Hovnanian Enterprises Inc. said Friday third-quarter earnings will come in below its previous targets, as the housing slowdown is leading to weaker sales and higher cancellations.

For the fiscal quarter ended July 31, the Red Bank, N.J.-based company expects to earn $1.10 to $1.20 per share, compared with its prior guidance of $1.40 to $1.50 per share.

On average, analysts surveyed by Thomson Financial forecast earnings of $1.41 per share.

Earnings for fiscal 2006 are now pegged at $5 to $5.75 per share, below a previous range of $7.20 to $7.40 per share as well as the average consensus estimate of $6.46 per share. Estimated land-sale profits of $12 million for the fourth quarter came in below targets, Hovnanian said.

Home deliveries are expected to total between 19,600 and 20,500 in fiscal 2006, including 2,000 to 2,300 homes in unconsolidated joint ventures.

"Our anticipated financial results for the remainder of 2006 continue to be negatively impacted by a slower sales pace, high cancellation rates on contracts in backlog that were projected to close this year, and more pronounced use of concessions and incentives, particularly on the resale of those homes which have experienced contract cancellations," said Ara Hovnanian, president and chief executive.

Hovnanian is the latest in a series of home builders to pare back their financial outlooks in the face of what from all indications is a slowing U.S. real-estate market. Lennar Corp., Pulte Homes Inc. and Toll Brothers Inc. have cut their profit forecasts after a weaker-than-expected spring sales season.

The home builder said it is renegotiating a "significant number" of its land options contracts, which is expected to result in walkaway costs. Hovnanian is scheduled to report third-quarter earnings in the first week of September.

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