Hovnanian Enterprises NYSE: HOV reported second-quarter fiscal 2026 results that management said reflected “solid execution” in a volatile housing market, with profitability coming in at the high end or above several internal targets despite weaker year-over-year delivery volume and elevated incentives.
Chairman and CEO Ara Hovnanian said total revenue for the quarter was $668 million, near the midpoint of the company’s guidance range. Adjusted gross margin was 14.3%, above the company’s forecast and up sequentially from 13.4% in the first quarter, which management said it believes marked the trough for margins. Selling, general and administrative expenses were 12.6% of revenue, at the favorable end of guidance. Adjusted EBITDA was $41 million, above the projected range, while adjusted pre-tax income was $9 million, at the top end of the company’s forecast.
“Despite a continued choppy demand environment, we delivered solid execution coming in at or above nearly all of our targeted metrics,” Ara Hovnanian said.
Revenue Slips as Deliveries Decline
Compared with the prior-year quarter, Hovnanian said total revenue declined 3%, primarily because the company delivered 12% fewer homes. A land sale in the second quarter partially offset the impact of lower deliveries.
Management said adjusted gross margin was lower than a year earlier, largely due to higher incentives used to support affordability and maintain sales pace. Incentives represented 11.9% of average sales price in the quarter, with most of that tied to mortgage rate buydowns. While that level was up 140 basis points from the prior year, it was down 70 basis points from the first quarter, marking the first sequential decline in incentives in nearly two years, according to the company.
Ara Hovnanian said the company has been using incentives deliberately as it works through older, lower-margin lots and quick move-in inventory. He said newer communities should support improved margins because today’s incentive environment has been built into recent land underwriting.
“As our new communities come online, again, I will keep repeating this, we do expect to see stronger margins going forward,” he said.
The company also cited some cost and operating improvements. Construction costs decreased 2% year-over-year in the second quarter, and cycle times for single-family homes improved by six days to 138 calendar days.
Sales Pace Holds Despite “Choppy” Demand
Hovnanian said second-quarter contracts increased slightly year-over-year, rising by 38 contracts, even as management described the selling environment as pressured by lower consumer confidence. Ara Hovnanian said the company believes contracts would have declined sharply without the incentives it offered.
Monthly results varied significantly. February showed the strongest year-over-year increase in contracts highlighted in management’s presentation, March declined 8% year-over-year, and April increased 3%. Ara Hovnanian attributed some March weakness to macro uncertainty related to the Iran war. As of the day before the call, he said May month-to-date contracts were up 12% from the prior year, if that pace held through month-end.
“Summing up the slide in one word, the environment is choppy,” Ara Hovnanian said.
The company reported 11.3 contracts per community in the second quarter, slightly above the prior year and close to its average second-quarter absorption pace since 1997. Management also said its adjusted calendar-quarter contracts per community ranked second among the public builders it tracks.
Quick Move-In Inventory Falls
Management emphasized progress reducing quick move-in, or QMI, homes. The company ended the second quarter with 5.8 QMIs per community, roughly flat with the prior quarter but down significantly from prior levels. Total QMIs fell to 731 at the end of April 2026 from 1,163 at the end of January 2025, a 37% reduction.
Finished QMIs declined 55% year-over-year, from 304 at the end of the prior-year second quarter to 137 at the end of the latest quarter. Ara Hovnanian said the company now has less than one finished QMI per community.
QMIs accounted for 68% of total sales in the second quarter, down from a previous high of 79% but still well above the company’s historical average of about 40%. Sales of to-be-built homes increased to 32% from 21%.
Management said to-be-built homes typically carry higher margins than QMIs. CFO Brad O’Connor said that historically, before the rise in mortgage rates, about 60% of the company’s sales were to-be-built homes, though he said it remains unclear how quickly the company could return to that mix.
Liquidity Remains Above Target
O’Connor said Hovnanian ended the quarter with $442 million in liquidity, above its target range, after spending $232 million on land and land development and $10 million on stock repurchases. He said the company’s liquidity has remained above $400 million for three consecutive quarters.
The CFO said Hovnanian has reduced debt by $749 million over the past few years while increasing equity by $1.3 billion. Net debt to capital was 43.1%, down from 146.2% at the start of fiscal 2020. The company remains focused on a 30% net debt-to-capital target.
O’Connor also said Hovnanian has $222 million in deferred tax assets and does not expect to pay federal income taxes on about $700 million of future pre-tax earnings.
The company ended the second quarter with 33,632 domestic controlled lots, equal to a 6.5-year supply, or 36,621 lots including joint ventures. Domestic controlled lots declined 21% year-over-year, which management attributed to disciplined underwriting and a willingness to walk away from deals that do not meet return thresholds. O’Connor said 86% of the company’s lots are controlled through options, reflecting its land-light strategy.
Third-Quarter Outlook and Fourth-Quarter Expectations
For the third quarter of fiscal 2026, Hovnanian guided for total revenue of $650 million to $750 million, adjusted gross margin of 14% to 15%, SG&A of 12.5% to 13.5% of revenue, joint venture income between breakeven and $10 million, adjusted EBITDA of $30 million to $40 million, and adjusted pre-tax income between breakeven and $10 million.
O’Connor said the guidance assumes broadly stable market conditions, with no major increases in mortgage rates, tariffs, inflation, cancellation rates or construction cycle times.
Management said it expects sequential improvement in the fourth quarter, particularly in volume and gross margins, as deliveries from newer communities increase. In response to an analyst question, O’Connor clarified that the company was referring to sequential improvement, not year-over-year improvement.
“We believe we are well-positioned for meaningful improvement in the fourth quarter, particularly in volume and gross margins as newer communities begin to deliver,” Ara Hovnanian said.
He added that demand remains present, but buyers are hesitant amid economic and geopolitical uncertainty. “Customers are engaged,” he said in closing. “They’re just hesitant to pull the trigger at volumes that we’d consider normal and at margins that we’d consider normal.”
About Hovnanian Enterprises NYSE: HOV
Hovnanian Enterprises, Inc is a publicly traded homebuilding company primarily engaged in the acquisition, development and construction of residential properties. Headquartered in Red Bank, New Jersey, the company operates through a network of regional homebuilding divisions that design and deliver a range of housing solutions, including single-family detached homes, townhomes and condominiums. Hovnanian combines land development, architectural design and construction services with in-house mortgage and insurance offerings to provide a comprehensive homebuying experience.
The company markets its communities under several branded product lines tailored to different buyer segments and price points.
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