Hovnanian Enterprises Q3 Earnings Call Highlights

Key Points

• Q3 results were mixed: Revenue reached $706 million and adjusted gross margin was 14.6%, both around the midpoint of guidance, but adjusted pre-tax income was a $2 million loss due mainly to delayed deliveries and weaker income from unconsolidated joint ventures.
• Buyer caution weighed on sales: Contracts fell to 1,359 homes, down 57 from the prior year, as affordability concerns and market volatility kept buyers hesitant despite strong website traffic and a modest improvement in August sales.
• Management expects a stronger Q4: Hovnanian forecasts $800 million–$900 million in revenue, adjusted EBITDA of $50 million–$65 million and adjusted pre-tax income of $15 million–$30 million, assuming broadly stable mortgage rates, costs and cancellation rates.

Hovnanian Enterprises NYSE: HOV reported fiscal 2026 third-quarter revenue of $706 million, slightly above the midpoint of its prior guidance range, as the homebuilder navigated a housing market marked by elevated mortgage rates, incentives and cautious consumer behavior.

Adjusted gross margin was 14.6%, also above the midpoint of guidance, while adjusted EBITDA totaled $32 million. The company posted an adjusted pre-tax loss of $2 million, below its guidance range, which had called for break-even results or better. Chairman and Chief Executive Officer Ara Hovnanian said the shortfall primarily reflected lower-than-expected income from unconsolidated joint ventures, driven substantially by delivery delays at its newest joint ventures.

“This was the first time in 23 quarters that adjusted pre-tax income finished below the guidance range,” Hovnanian said. He added that results would have fallen within the range if joint-venture income had reached the midpoint of guidance or if quarterly quick move-in sales had been modestly stronger.

Sales Pace and Buyer Caution

Third-quarter contracts declined by 57 homes from the prior-year period to 1,359 homes. The company generated 9.4 contracts per community during the quarter, a level Hovnanian characterized as slightly above its historical average. Management said website traffic remained strong, though potential buyers have been hesitant to finalize purchases amid affordability concerns and geopolitical and financial volatility.

Hovnanian said August month-to-date contracts were up 3% from a year earlier. Website visits in July were higher than in all but one year since 2019, while traffic during the final two weeks of the month exceeded levels from any year since 2019, according to the company.

However, sales patterns remained uneven. Management said May showed a stronger year-over-year comparison, June was roughly in line with the prior year, and July trailed the prior-year level before August improved modestly.

The company’s strategy has centered on maintaining sales pace, working through older land inventory acquired before incentives became more prevalent, and avoiding excessive quick move-in, or QMI, inventory. During the quarter, 33% of delivered homes were both sold and closed within the same quarter. Hovnanian’s backlog conversion ratio was 74%, above its historical average of 57% since the third quarter of fiscal 1998.

Margins, Incentives and Inventory

Management said gross margin has improved sequentially for two quarters after reaching what it views as a low point in the first quarter. Incentives remained elevated compared with historical levels but declined from the first quarter through the third quarter, even as mortgage rates increased during the latest period.

Hovnanian said 31% of its communities were able to either raise prices or reduce incentives during the third quarter. Management said newer communities are expected to support improved margins because they were underwritten with higher incentive levels already incorporated into projected returns.

The company’s QMI inventory rose slightly to 6.7 homes per community, but total QMI inventory has fallen 29% from early fiscal 2025 levels. Management said the lower inventory position provides greater flexibility in managing incentives and pricing and could increase the portion of sales generated from to-be-built homes, which generally carry higher margins.

Chief Financial Officer Brad O’Connor said construction costs per square foot increased slightly during the quarter, with minor increases in several areas and lumber beginning to rise. He said the company continues to seek reductions in material and labor costs, noting that costs remain below levels seen at the beginning of fiscal 2025.

Land Strategy and Community Growth

Hovnanian ended the quarter with 147 communities, compared with 146 communities a year earlier. The company opened 62 new communities and closed 61 over the past 12 months. O’Connor said the company expects community count to increase sequentially in the fiscal fourth quarter and to grow in fiscal 2027, barring market developments that cause it to abandon additional land deals.

Management said community-count growth has been slower than anticipated because the company has walked away from certain land contracts during due diligence when they did not meet underwriting standards. Hovnanian said it is increasing its focus on land acquisition opportunities, including potential opportunities arising from industry merger-and-acquisition activity and from competitors exiting projects.

The company continued to emphasize its land-light strategy. Option lots represented 87% of its controlled lot portfolio at the end of the third quarter, the highest percentage in company history. In addition, 82% of controlled lots were acquired or controlled in fiscal 2023 or later, when elevated incentive levels had already become part of underwriting assumptions.

Management said the company is also shifting its portfolio toward higher-priced move-up buyers and active-adult communities, while reducing exposure to highly competitive entry-level price points. Hovnanian recently hired Deborah Blake, described as an active-adult lifestyle expert, to support its Four Seasons brand and related communities.

Fourth-Quarter Outlook

For the fiscal fourth quarter, Hovnanian forecast revenue of $800 million to $900 million, with no land sales assumed in that outlook. The company expects adjusted gross margin of 15% to 16.5%, SG&A expense equal to 10.5% to 11.5% of revenue, and joint-venture income of $10 million to $20 million.

• Adjusted EBITDA is projected at $50 million to $65 million.
• Adjusted pre-tax income is projected at $15 million to $30 million.
• The outlook assumes broadly stable market conditions, including no major increases in mortgage rates, tariffs, inflation, cancellation rates or construction cycle times.

O’Connor said the company’s fourth-quarter results could be sensitive to delivery timing and product mix because a larger portion of deliveries is coming from QMIs. He also said average selling prices should rise gradually over time as the company brings on newer communities and moves away from its first-time-buyer Aspire product line.

Regarding Hovnanian’s Saudi Arabia-related business, management said the recently consolidated operation is between communities and has had limited income-statement impact to date. The company expects some deliveries to begin in the fourth quarter, with additional activity expected in 2027, while emphasizing that the business remains a minor investment and activity level for now.

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.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.

Continue following MarketBeat

Add MarketBeat as your preferred source on Google to see our latest stories in your feed.

Add As Preferred Source