Homebuilder Hovnanian Increases Revenue, Raises Full-Year Guidance

Homebuilder Hovnanian Enterprises NYSE: HOV, which has been consolidating since early June, traded higher Thursday on the heels of the company’s third-quarter report. 

Revenue increased 10% to $690.7 million in the quarter, compared with $628.1 million in the same quarter of the prior year. 

For the nine months ended July 31, total revenue increased 18.5% to $1.97 billion, compared with $1.66 billion in the same period during the previous fiscal year.

Net income came in at $47.7 million, or $6.72 per diluted common share. That compares to net income of $15.4 million, or $2.16 per diluted common share, in the year-ago quarter.  

The New Jersey-based company said homebuilding gross margin percentage, after cost of sales interest expense and land charges, increased to 19.2% in the quarter. 

Hovnanian expects total revenue of $830 million in the fourth quarter, and $2.8 billion for the full year. That’s up from previous full-year guidance in a range between $2.65 billion and $2.80 billion.

Financial services income before taxes was $8.6 million. 

One item stood out in the report: The practice of “metering” sales, or deliberately throttling back on the number of homes the company was selling. This has been an industry-wide practice in the pandemic era. 

The ramifications of the “everything shortage” throughout the entire economy are widely known.

For homebuilders, it’s a risk to disappoint customers who already paid, if supply chain or labor shortages delay delivery of their new digs. Many builders have decided it’s better to tell prospective buyers they’ll have to wait, rather than give bad news to existing customers. 

While lumber prices have come down from a peak in early May, costs of other items, such as appliances and plumbing fixtures, are still rising. That means it’s difficult to set forward-looking prices for new homes. 

Hovnanian refers to the process of slowing sales as “metering.” 

In Thursday’s release, the company said, “As a result of metering sales, selling out of communities ahead of schedule, Covid-19 related delays for new community openings and unprecedented demand after the initial Covid-19 shutdown last year, consolidated contract dollars decreased 31 % in the third quarter of fiscal 2021 to $609.1 million (1,211 homes) compared with $882.3 million (2,226 homes) in the same quarter last year.”

It added that the dollar value of consolidated contract backlog at the end of the quarter grew 41.8% to $1.75 billion, compared with $1.23 billion a year earlier. 

Hovnanian has one of the best technical performances among stocks in the homebuilding industry. 

It’s up 227.39% over the past year and 185.54% year-to-date, but down 13.14% over the past three months as it’s been correcting.

In its current base, the stock corrected 44.6% from its June 1 high of $146.34. It’s taking the shape of a saucer or perhaps shallow cup pattern. In morning trade on Thursday, shares were up $8.01, or 8.54%, to $101.84. The stock was trading 2% above its 50-day average, and 1.4% below its 10-day line. 

Larger homebuilders have also been consolidating. 

Lennar Corp. NYSE: LEN, with a market cap of $31.51 billion, is down 2.95% in the past month, as the stock retreated after clearing a cup-with-handle base on August 11. It’s down 5.14% this week, trading 3% below its 50-day moving average. 

Toll Brothers (NYSE: TOL), a mid-cap with a market capitalization of $7.575 billion, has been consolidating in a somewhat more orderly fashion, although it, too, skidded this week. 

Shares of Toll Brothers are up 5.59% in the past month, following the company’s earnings report on August 24, when the stock got a boost. It rose 8.27% that week in heavier-than-normal volume, but has sputtered since then, in tandem with the broader market’s pullback this week.