Hovnanian Enterprises Inc. isn't counting on any improvement in the housing market for at least another two years, but the homebuilder is pressing ahead with plans to open more communities next year.
The company, which reported a smaller fiscal fourth-quarter loss on Thursday, is counting on sales at newer, more profitable communities to help it weather weak housing demand.
In the August to October quarter, its new home contracts rose 3 percent, while home deliveries _ a key driver of revenue _ declined about 3 percent.
Hovnanian says it can boost its "top line," or revenue, by selling more homes from newer communities built on less expensive land, rather than parcels acquired before the housing downturn.
"Our internal projections for the next two years assume no improvement in market conditions," said Ara K. Hovnanian, the builder's chairman, president and CEO. "So any top line growth is driven by community count growth."
Hovnanian ended fiscal 2011 with 5 percent more open communities than in 2010. And the percentage of homes Hovnanian sold from its newer communities more than tripled in fiscal 2011 versus a year earlier. The company expects that will increase next year.
A further decline in home prices _ which some economists expect next year _ could undermine the strategy because that could force the builder to lower its asking price or offer sales incentives.
In the fourth quarter, Hovnanian ramped up sales incentives and lowered prices to woo buyers and that led to a lower-than-anticipated increase in the profit margin on its homes.
Even so, the builder got off to a good start going into next year. Its backlog of homes under contract at the end of the quarter increased 19 percent from a year earlier. Backlog is an indicator of potential home deliveries.
That's good news, given that home sales typically slow in December and January before picking up in the spring, traditionally the peak sales period for homes.
Builders are looking ahead to next spring, after sales of new homes stagnated this year at a pace that remains behind 2010's, which was the worst in a half century.
Sales of new homes climbed nationally in October and September after declining from May through August, as builders cut prices because of depressed demand. Uncertainty over the economy, high unemployment and concerns that home prices have yet to hit bottom continue to keep many prospective buyers on the sidelines.
Builders also are struggling to compete with foreclosures, which have made the price of re-sales more competitive.
While new home sales represent a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.
Hovnanian, based in Red Bank, N.J., has operations in 17 states and the District of Columbia. It is the seventh-largest homebuilder in the U.S., based on homes delivered last year.
The company said it lost $98.3 million, or 90 cents per share, for the three months ended Oct. 31. That compares with a loss of $132.1 million, or $1.68 per share, a year earlier. Analysts polled by FactSet forecast a loss of 40 cents per share. They typically exclude unusual items from their estimates.
Excluding land-related charges and a gain on debt extinguishment, Hovnanian's pre-tax loss was $45.2 million for the quarter.
Revenue fell 3 percent to $341.6 million from $353 million a year ago but still beat Wall Street's estimate of $336.7 million.
Hovnanian's fourth-quarter net contracts totaled 1,175 homes, while deliveries fell to 1,245 homes. Backlog totaled 1,663 homes, with a sales value of $552.4 million, an increase of 26 percent from a year earlier.
Hovnanian ended the quarter with $302.1 million in cash, including $57.7 million of restricted funds required as collateral for letters of credit. Spending on land and other costs has raised concern among some analysts that the company might not have a large enough financial cushion should the housing market slump worsen.
Hovnanian said it has adequate cash to buy and develop land, increase the number of open home communities and pay back debt.
For the year, Hovnanian reported a loss of $286.1 million, or $2.85 per share. That compares with net income of $2.6 million, or 3 cents per share, in the previous year. Annual revenue fell 18 percent to $1.13 billion from $1.37 billion.
Hovnanian shares slipped a penny to $1.35 in afternoon trading. The stock has ranged from 89 cents to $5 in the past 52 weeks.