Hovnanian, Toll Brothers post quarterly losses (Reuters)

NEW YORK (Reuters) - Two large U.S. home builders posted quarterly losses amid the steep U.S. housing decline, but Hovnanian Enterprises Inc's (HOV.N) results were far worse than Wall Street expected, while Toll Brothers Inc's (TOL.N) loss was half what analysts had anticipated.

Hovnanian shares fell were down 17.4 percent in afternoon trading, while Toll edged down a bit.

As the housing crisis grinds into its third year, homes for sale continue to pile up, even as foreclosures and a tightening of credit standards in the wake of the subprime bust push prices lower.

At the current pace, it would take about 11 months to clear the current inventory, despite a 7.1 percent year-over-year drop in the median national home price to $212,400, the National Association of Realtors reported last week.

But Hovnanian Chief Executive Ara Hovnanian said the company is starting to see reasons for hope in some markets he called "foreclosure hotbeds" such as Stockton, California. There, home owners have finally lowered prices enough to increase the sales volume of existing homes, which in turn is quickening sales of new homes and bringing supply back to "a healthy level, even at the best of times," he said.

Toll, which said on Thursday that revenue for the current quarter would decline from the previous period, also sounded a note of cautious optimism, saying that cancellations were the lowest in more than two years.

"We believe that there is pent-up demand," said Chief Executive Robert Toll. "When we have held promotions, many more buyers than usual have come out and put down deposits."

UBS analyst David Goldberg, who rates Toll a "buy," said positive signs at the company did not indicate a broader trend.

"This likely reflects the benefit of Toll's relatively better-positioned communities," he wrote in a note to clients.

TOLL SWINGS TO LOSS

Toll reported a net loss of $29.3 million, or 18 cents per share, for the third quarter ended on July 31, compared with a year-earlier profit of $26.5 million, or 16 cents per share. Analysts on average had expected a loss of 36 cents a share, according to Reuters Estimates.

Late on Wednesday, Hovnanian said its loss for the same period widened to $202.5 million, or $2.67 per share, from $77.9 million, or $1.27 a share. Analysts had forecast a loss of $1.68 per share.

Revenue for both companies fell about 34 percent from a year earlier.

Builders have coped with the downturn by shifting focus from profitability to survival through the paying down of debt and the generation of cash, a strategy that has necessitated elevated incentives and the sale of land, even at a loss, that companies bought at peak prices during the boom years.

SELLING LAND, BUYING LAND?

Toll has chopped its supply of lots by about 47 percent from 91,200 at its peak in 2006, while Hovnanian has 46,682 lots, or 62 percent fewer than it had in April 2006.

Builders often have to write down the value of land they do not or cannot sell. Hovnanian said its third-quarter results included pretax charges of $111.7 million for the lower value of land and inventory. Toll had pretax write-downs of $139.4 million.

Toll is among the builders best positioned not only to weather the downturn, but to emerge stronger due to its robust balance sheet and relative lack of leverage, Goldberg wrote. Its net debt-to-capital ratio is only 19 percent.

By comparison, Hovnanian's net debt-to-capital ratio is 61 percent, above the 41 percent peer group average, Goldberg said.

To circumvent its liquidity constraints and still be able to take advantage of cheap land when prices fall far enough, Hovnanian announced during its conference call that it is close to sealing a new joint venture to buy distressed assets.

Hovnanian would put up 10 percent of the equity while the partner would invest the remaining 90 percent. If the properties perform as expected, the company would earn 40 percent of the profit.

"We are not ready to buy new land today," Hovnanian said, but the joint venture will enable the company to move quickly when it perceives opportunities.

(Reporting by Helen Chernikoff; Editing by Lisa Von Ahn and Andre Grenon)