How are energy investors positioned?
Hovnanian Enterprises reported its third-quarter 2025 earnings, revealing a significant miss on both earnings per share (EPS) and revenue forecasts, leading to a notable pre-market stock price reaction. According to InvestingPro data, the company trades at an attractive P/E ratio of 4.25x and appears undervalued based on its Fair Value analysis. For more undervalued opportunities, visit our Most Undervalued Stocks list. The company posted an EPS of $1.99, falling short of the expected $3.51, a 43.3% negative surprise. Revenue came in at $800.58 million, slightly below the forecasted $806.2 million. Despite the disappointing earnings, Hovnanian’s stock rose 5.4% in pre-market trading, reaching $157, although it had previously closed at $148.95, marking a 13.29% decline from the last session.
Key Takeaways
- Hovnanian’s Q3 EPS of $1.99 missed the $3.51 forecast by 43.3%.
- Revenue was slightly below expectations at $800.58 million.
- Stock rose 5.4% in pre-market despite earnings miss.
- Mortgage rate buydowns impacted gross margins.
- Company maintains a strong position in the active adult and move-up segments.
Company Performance
Hovnanian Enterprises experienced an 11% year-over-year increase in total revenues, reaching $81 million. Despite the revenue growth, the company’s adjusted gross margin declined to 17.3%, mainly due to increased mortgage rate buydowns. The adjusted EBITDA surpassed guidance at $77 million, and adjusted pretax income hit $40 million, at the top of the guidance range. The company continues to focus on Quick Move-In homes, reducing total QMIs by 13% since January.
Financial Highlights
- Revenue: $800.58 million, slightly below the $806.2 million forecast.
- Earnings per share: $1.99, missing the $3.51 forecast.
- Adjusted EBITDA: $77 million, above guidance.
- Adjusted gross margin: 17.3%, impacted by mortgage rate buydowns.
Earnings vs. Forecast
Hovnanian’s Q3 2025 earnings missed expectations significantly, with a 43.3% EPS surprise on the downside. This deviation from forecasts marks a notable miss compared to previous quarters, affecting investor sentiment.
Market Reaction
Despite the earnings miss, Hovnanian’s stock saw a 5.4% increase in pre-market trading, reaching $157. This movement follows a previous close at $148.95, reflecting a 13.29% decline. InvestingPro data shows the stock has been notably volatile, with a beta of 2.19, suggesting higher sensitivity to market movements than average. The stock has delivered a 22.5% return over the past six months despite recent fluctuations. The stock’s performance is notable compared to its 52-week range, which has seen highs of $240.34 and lows of $81.15.
Outlook & Guidance
Looking ahead, Hovnanian anticipates Q4 total revenue between $750 million and $850 million, with an adjusted gross margin of 15-16.5%. The company also expects adjusted pretax income of $45 million to $55 million and joint venture consolidation income of approximately $30 million. The focus remains on maintaining sales pace over price adjustments.
Executive Commentary
CEO Ara Hovnanian emphasized the company’s strategic focus amid challenging market conditions, stating, "Given the tough operating environment, we are focusing on this even more today." He also highlighted the company’s resilience in finding new land opportunities that meet return hurdles despite high incentives and slower sales pace.
Risks and Challenges
- High mortgage rates affecting gross margins.
- Market choppiness impacting monthly sales consistency.
- Entry-level market challenges.
- Potential supply chain disruptions.
- Economic pressures influencing consumer spending.
Q&A
During the earnings call, analysts inquired about the improvement in July sales, attributed to macroeconomic conditions. Discussions also covered land seller negotiations to share market challenges and exploration of debt restructuring opportunities. The active adult and move-up segments were noted for their pricing power.
Full transcript - Hovnanian Enterprises (HOV) Q3 2025:
Conference Moderator: Good morning, and thank you for joining us today for Obnanian Enterprises’ Fiscal twenty twenty five Third Quarter Earnings Conference Call. An archive of the webcast will be available after the completion of the call and run for twelve months. This conference is being recorded for rebroadcast and all participants are currently in a listen only mode. Management will be making opening remarks about the third quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management.
The slides are available on the Investors page of the company’s website at www.khov.com. Those listeners who would like to follow along should now log on to the website. I would like to turn the call over to Jeff O’Keefe, Vice President, Investor Relations. Jeff, please go ahead.
Jeff O’Keefe, Vice President, Investor Relations, Hovnanian Enterprises: Thank you, Michelle, and thank you all for participating in this morning’s call to review the results for our third quarter. All statements in this conference call that are not historical facts should be considered as forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Such forward looking statements include, but are not limited to statements related to the company’s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions, and expectations reflected and are suggested by such forward looking statements are reasonable, we can give no assurance that such plans, intentions, or expectations will be achieved.
By their nature, forward looking statements speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties, and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward looking statements as a result of a variety of factors. Such risks, uncertainties, and other factors are described in detail in the sections entitled Risk Factors in Management’s Discussion and Analysis, particularly the portion of MD and A entitled Safe Harbor Statement and our annual report on Form 10 k for the fiscal year ended 10/31/2024 and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable security laws, we under take no obligation to publicly update or revise any forward looking statements or whether or revise any forward looking statements whether as a result of new information, future events, or change of circumstances or any other reason. Joining me today on the call are Ara Hovnanian, chairman and president president and CEO Brad O’Connor, chief financial officer David Mitrissen, vice president corporate controller and Paul Eberle, Vice President Finance and Treasurer.
Ira, you can go ahead.
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: Thanks, Jeff. I’m going to review our third quarter results, and I’ll also comment on the current housing environment. Brad will follow me with more details as usual and of course, we’ll open it up to Q and A afterwards. Let me begin on Slide five. Here we show our third quarter guidance compared to our actual results.
Given all of the political and economic uncertainty that was present throughout the quarter, we’re pleased that we met or exceeded the guidance we provided for all of the metrics. Starting at the top of the slide, revenues were $8.00 $1,000,000 which was right at the midpoint of our guidance. Our adjusted gross margin was 17.3% for the quarter, which was just below the midpoint of the guidance range. Our SG and A ratio was 11.3%, which was better than the midpoint of our guidance. Our income from unconsolidated joint ventures $16,000,000 which was within the guidance range, although on the lower end.
Adjusted EBITDA was $77,000,000 for the quarter, which was above the high end of the guidance range. And finally, our adjusted pretax income was $40,000,000, which was at the very top of our guidance range. While this is adjusted pretax income, which excludes land charges, we did have higher walk away costs and impairment charges during this year’s third quarter. The majority of the impairments were in the West segment and were related to communities where we also walked away from land that we didn’t that didn’t meet our return thresholds. Again, given the challenging operating environment, we’re satisfied that we’re able to meet or exceed the guidance we provided.
On Slide six, we show our third quarter results compared to last year’s third quarter. Keep in mind that last year’s third quarter was particularly strong, partly because it contained $46,000,000 from a gain on consolidation of a joint venture. As Brad will discuss later, we anticipate yet another gain from consolidation of a joint venture in the fourth quarter. Given the current high level of incentives, it’s no surprise that adjusted gross margin and adjusted pretax profit experienced year over year declines. Starting in the upper left hand portion of the slide, you can see that our total revenues increased 11% year over year due to an increase in deliveries.
Moving across the top to adjusted gross margin, our gross margin was down year over year mainly due to increased incentives for affordability and also related to our focus on pace versus price and our short term strategy of burning through low margin lots. During this year’s third quarter, incentives were 11.6% of the average sales price. The majority of this cost is related to buy buying down mortgage rates. This is up 390 basis points from a year ago. It’s up 110 basis points from the ’25, and it’s up eight sixty basis points from fiscal year twenty two, which was prior to the mortgage rate spike impacting our deliveries.
Other than the extraordinary cost to buy down mortgage rates to make our homes affordable today, our gross margin would be very healthy. Moving to the bottom left, you can see that our total SG and A improved 110 basis points year over year to 11.3%. In the bottom right hand portion of the slide, you can see the negative impact the gross margin decline had on our year over year profitability. Again, while much lower than last year, it was at the top of our guidance range, which was consistent with our focus on burning through our older vintage lots and QMIs and emphasizing sales pace over price and clearing our balance sheet for our newer land contracts, which have much higher margins. If you turn to Slide seven, you can see that contracts for the third quarter increased 1% year over year.
Once again, there was considerable variability in monthly sales shown on slide eight. Contracts were down 4% in May, then bounced back with a 1% increase in June and followed by a 7% increase in July. On slide nine, you can see that the most recent three months continued a trend of choppiness over the last year. If you turn to slide 10, you can see that contracts per community increased this year compared to last year’s third quarter. Additionally, the 9.8 contracts per community in this year’s third quarter was higher than our quarterly average of 9.1 for the third quarter since 02/2008, but we didn’t get back to the 97 through o two levels that we consider to be a normal sales environment.
On slide 11, we give more granularity and show the trend of monthly contracts per community compared to the same month a year ago and to long term monthly averages. Here, you can see that for the first two months of the quarter, this year’s sales pace was lower than last year. This trend flipped in the month of July when we sold 3.4 homes per community compared to 3.2 homes in July ’24. When you look at the most recent month compared to the monthly average since 02/2008, the last two months of the quarter were better than the long term average. Turning to Slide 12, we show contracts per community as if we had a June 30 quarter end.
This way we can compare our results to our peers that report contracts per community on the calendar quarter end. At 9.6 contracts per community, our sales pace is the third highest among the public homebuilders. On slide 13, you can see that year over year contract per community declined for all homebuilders shown on the slide that report this metric. While any decline is not desirable, we outperformed all but two of our peers. Again, this was as if our quarter ended in June so that we can compare our results to these other companies.
Our July quarter was stronger with a 3% year over year increase in contracts per community and the month of July was up 6% over the prior year in contracts per community. What we’re trying to illustrate in these last two slides is that even though the recent sales pace is not what everyone had hoped for, our focus on pace over price has resulted in an above average number of contracts per community for us compared to our peers. On slide 14, you can see that for a considerable percentage of our deliveries, our homebuyers continued to utilize mortgage rate buydowns. The percentage of homebuyers using buydowns in this year’s third quarter was 75%. The buy down usage in our deliveries indicates that buyers continue to rely on these home, on these rate buy downs to combat affordability at the current mortgage rates.
Given the persistently high mortgage rate environment, we assume buy downs will remain at similar levels going forward. In order to meet homebuyers’ needs from lower mortgage rates and certainty, we’re intentionally operating at an elevated level of quick move in homes or QMIs as we call them, since QMIs with a delivery date in sixty to ninety days can have mortgage rates bought down and locked in a cost efficient manner. On slide 15, we show that we had 8.2 QMIs per community at the end of the third quarter. This is the second consecutive quarter of sequential reductions in QMI per community. We are down from 9.3 in the ’25 to 8.6 in the second quarter twenty five to 8.2 in the third quarter.
This gets us closer to our current target of about eight QMIs per community with varied delivery dates and model types. As a reminder, we define QMIs as any unsold home where we’ve begun framing. On slide 16, we show the decline in total QMIs from January 25 until July ’25. Here you can see that QMIs decreased from eleven sixty three in January to ten seventy three in April and then to ten sixteen in July. This is a 13% decrease from January to July.
In the ’25, QMI sales were 79% of our total sales. This was equal to last quarter, which was the highest quarter since we started reporting this number twelve quarters ago. Historically, that percentage was 40%, about half. So obviously the demand for QMIs remains high, so we’re comfortable with the current level of QMIs in this environment. We ended the third quarter with three twenty three finished QMIs.
On a per community basis, that puts us at 2.6 finished QMIs per community. The focus on quick move in homes results in more contracts that are signed and delivered in the same quarter. That leads to lower levels of backlog at quarter ends, but a higher backlog conversion rate. During the ’25, 34% of our homes delivered in the quarter were contracted in the same quarter. This obviously makes it a little more challenging when providing guidance for the next quarter.
It also resulted in a high backlog conversion ratio of 84%, which is significantly higher than the third quarter average backlog conversion ratio of 55% going all the way back to 1998. We continue to manage our QMIs on a community level and we’re highly focused on matching our QMI starts pace with our QMI sales pace. If you move to Slide 17, you can see that even with higher mortgage rates and a slower than anticipated sales pace nationally, we are still able to raise net prices in 21% of our communities during the third quarter. 71% of the communities with price increases were in Delaware, Maryland, New Jersey, South Carolina, Virginia, and West Virginia, which are among our better performing markets. While the sales environment has been difficult, we’ve been focusing on pace versus price as we have been for many quarters now, but we’re still raising prices and lowering incentives when our sales pace at certain communities warrants it.
Economic uncertainty, high mortgage rates, affordability and low consumer confidence have caused many consumers to delay purchasing a new home. To increase our sales pace and make our homes affordable, we continue to offer mortgage rate buy downs. Our gross margins ignoring the mortgage rate incentives continue to be strong. However, offering mortgage rate buy downs is very expensive and continues to negatively impact our gross margin at many locations. Our new land purchases show excellent margins at the current sales pace and price and excellent IRRs even after the expense of buy downs.
I’ll now turn it over to Brad O’Connor, our Chief Financial Officer.
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: Thank you, Era. Turning to slide 18, you can see that we ended the quarter with a total of 146 open for sale communities, which is the same total as last year’s third quarter. 124 of those communities were wholly owned. During the third quarter, we opened 25 newly new wholly owned communities and sold out of 26 wholly owned communities. Additionally, we had 22 domestic unconsolidated joint venture communities at the end of the third quarter.
We closed one during the quarter. We continue to experience delays in opening new communities primarily related to utility hookups and permitting delays throughout the country. We do expect community count will grow sequentially in the ’25. The leading indicator for further community count growth is shown on slide 19. We ended the quarter with 40,246 controlled lots, which equates to a seven year supply of controlled lots.
Our lot count increased 2% year over year, but 36% from two years ago. If you include lots from our domestic unconsolidated joint ventures, we now control 43,343 lots. We added 3,500 lots in 30 future communities during the third quarter. Our land teams are actively engaging with land sellers, negotiating for new land parcels that meet our underwriting standards, even with high incentives and the current sales pace. In fiscal twenty four, we began talking about our pivot to growth.
This followed a stretch of several years when we used a significant amount of cash generated to pay down debt. One interesting trend to point out about the growth on this slide, our lot options grew by more than 13,000 and our lots owned shrunk by more than 2,400 lots as we continue to focus on our land light strategy. On the far right side of slide 20, you can see that our lot count decreased sequentially for the second quarter in a row. These recent declines are reflective of the operating environment. We are definitely being more selective with the new lots that we controlled during these last two quarters, and we also walked away from about 6,500 lots during the same two quarters, including 4,059 lots in the third quarter.
Having said that, we were able to put 6,500 lots under contract in the last two quarters that met or exceeded our margin and IRR hurdle rates, even after factoring in our current high level of incentives. On slide 21, we show our land and land development spend for each quarter going back five years. You can see for much of the time shown on this slide, how that pivot to growth impacted our land and land development spend. However, for the past two quarters, you can see decreases due to the current market environment. This is another indication of our discipline in underwriting new land acquisitions.
Again, we always use current home prices, including the current high level of mortgage rate buy downs and other incentives, current construction costs and current sales pace to underwrite to a 20% plus internal rate of return. And then right before we are about to acquire the lots, we re underwrite them based on the then current conditions just to be sure that it still makes sense to go forward with the land purchase. We feel good that our new acquisitions will yield solid IRRs since we are building in huge incentives and a slower sales pace. Our underwriting standards automatically adjust to any changes in market conditions. We are still finding opportunities in our markets and are very focused on growing our top and bottom lines for the long term, but we are not stretching to make deals work.
We are being very disciplined. Thus, we would expect our land and land development spend in the fourth quarter will be significantly less than last year. On slide 22, we show the percentage of our lots controlled via option increased from 46% in the third quarter of fiscal ’fifteen to 86% in the ’5. This is the highest percentage of option lots we’ve ever had, continuing our strategic focus on land life. Turning now to slide 23, you see that we continue to have one of the highest percentages of land controlled via option compared to our peers.
Needless to say, with the fourth highest percentage of option lots, we are significantly above the median. On slide 24, compared to our peers, we have the third highest inventory turnover rate. High inventory turns are a key component of our overall strategy. We believe we have opportunities to continue to increase our use of land options and further improve our inventory turns in future periods. Our focus on pace versus price is evident here.
Turning to slide 25, even after spending $193,000,000 on land and land development, we ended the third quarter with $278,000,000 of liquidity, which is well above our targeted liquidity range. Turning to slide 26, this slide shows our maturity ladder as of 07/31/2025. Keep in mind that during the second quarter, we paid off early the remaining $27,000,000 of the 13.5% notes, our highest cost debt that was scheduled to mature in February 2026. This is the latest example of the steps we’ve taken over the past several years to improve our maturity ladder and reduce our interest cost. We remain committed to further strengthening our balance sheet going forward.
Turning to slide 27, we show the progress we’ve made to date to grow our equity and reduce our debt. Starting on the upper left hand part of the slide, we show the $1,300,000,000 growth in equity over the past few years. During that same time period, on the upper right hand portion, can see the $769,000,000 reduction in debt. On the bottom of the slide, you can see that our net debt, the net cap, at the end of the ’25 was 47.9 percent, which is a significant improvement from our 146.2% at the beginning of fiscal twenty. We still have more work to do to achieve our goal of 30%, but we are comfortable that we are on a path to achieve our targets soon.
Before we move on, I want to comment briefly on our interest expense for the quarter. Our interest expense as a percentage of total revenues increased year over year in the third quarter to 4.2% compared with 4% in the prior year’s third quarter despite reductions in our debt balance. This increase was predominantly due to a year over year increase in land banking arrangements under inventory not owned. Note that when we land bank inventory after we already purchased the lots, we must reflect the transaction as a financing showing the inventory in inventory not owned and the cash received as a liability from inventory not owned. The cost paid to the land banker in this situation is shown as interest expense.
When the land banker purchases the land directly from the seller, the cost paid to the land banker is shown as part of land costs and cost of sales. The latter cases are more common approach, but sometimes we are unable to align the timing of the purchase with the land banker and therefore we own the lots for a short period of time before the land banker buys them. While land banking is more expensive than debt, the downside risk is lower and more significant market Given our remaining $221,000,000 of deferred tax assets, we will not have to pay federal income taxes on approximately $700,000,000 of future pre tax earnings. This benefit will continue to significantly enhance our cash flow in years to come and will accelerate our growth plans.
Regarding guidance, given the volatility and the difficulty in projecting margins with moving interest rates and volatility in general, we will focus our guidance only on the next quarter. Our financial guidance assumes no adverse changes in current market conditions, including no further deterioration in our supply chain or material increases in mortgage rates, tariffs, inflation or cancellation rates. Our guidance assumes continued extended construction cycle times averaging five months compared to our pre COVID cycle times for construction of approximately four months. As we continue to be more reliant on QMI sales, forecasting profits becomes more difficult. We recognize that we beat pre tax guidance in the first quarter and performed at the very high end of the guidance range in the second and third quarters.
Notwithstanding the challenge of projecting even one quarter in this environment, we endeavor to provide guidance that we can meet and if situations are ideal, Our guidance assumes continued use of mortgage rate buy downs and other incentives similar to recent months. Further, it excludes any impact to SG and A expenses from our Phantom stock expense related solely to the stock price movement from the $119.47 stock price at the end of the ’25. Slide 28 shows our guidance for the ’25 compared to actual results for the ’25. Our expectation for total revenues for the fourth quarter is between $750,000,000 and $850,000,000 the midpoint of our total revenue guidance would be the same as the third quarter. Adjusted gross margin is expected to be in the range of 15% to 16.5%.
This is lower than a typical gross margin, particularly because of the increased cost of mortgage rate buy downs and our focus on pace versus price. We expect the range of SG and A as a percentage of total revenues to be between 1112%, which is still higher than usual. One of the reasons our SG and is running a little high is that we are gearing up for significant community count growth and we have to make new hires in advance of those communities. Our expectations for adjusted pre tax income for the fourth quarter is between $45,000,000 and $55,000,000 This would be down from last year, but up from our third quarter. This includes the expectation of other income from the consolidation of a joint venture in the fourth quarter when the partner is expected to reach their full return of all capital as prescribed in the JV agreement.
As a reminder, this has become a normal part of the life cycle of our joint ventures as we have had other income from JV related transactions three times in the past nine quarters. Moving to slide 29, we show all of the guidance we gave for the fourth quarter. The only two lines on here that we have not mentioned are income from unconsolidated joint ventures and adjusted EBITDA. We expect income from joint ventures to be between 8,000,000 and 12,000,000, and our guidance for adjusted EBITDA is between 77,000,000 and 87,000,000. Turning to slide 30, we show that our return on equity was 19%.
Over the last twelve months, we are the second highest amongst our mid sized peers shown in the dark green on this slide, and the fourth highest including the larger peer group. Obviously, is helped by our higher leverage. On slide 31, we show that compared to our peers, we have one of the highest adjusted EBITDA returns on investment at 22.1%. On this basis, we are the highest amongst the mid sized peers and fifth highest overall. While our ROE was helped by our leverage, our adjusted EBIT return on investment is a true measure of pure homebuilding operating performance.
Over the last several years, we’ve consistently had one of the highest ROIs and ROEs among our peers. On slide 32, we show our price to book value compared to our peers, and we are slightly higher than the median for all of the peers shown on the slide. On slide 33, we show the trailing twelve month price to earnings ratio for us and our peer group. Based on our price to earnings multiple of 7.24 times using Wednesday’s stock price of $148.95 we are trading at a 31% discount to the home building industry average PE ratio if you consider all public builders, and an 18% discount when considering our mid sized peers, even though we have the highest ROI among the mid sized peers. We recognize that our stock may trade at a discount to the group because of our higher leverage, but our leverage has been shrinking and our equity has been growing rapidly.
On slide 34, we show that despite our extremely high ROE, there are a number of peers that have a higher price to book ratio than us. This slide more visually demonstrates how much we are undervalued relative to other builders when looking at the relationship between ROE and price to book. A very similar result exists when looking at ROE to price to earnings. On slide 35, you can see an even more glaring disconnect with our high EBIT ROI and our PE. We have the fifth highest EBIT ROI and yet our stock trades at the lowest multiple to earnings of the entire group.
These last six slides further emphasize our point that given our high return on equity and return on investment, combined with our rapidly improving balance sheet, we believe our stock continues to be the most undervalued in the entire universe of public homebuilders. I’ll now turn it back to Eric for some brief closing comments.
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: Thanks Brad. I want to emphasize that in this more challenging environment, we continue to work with some of our land sellers currently under option in order to find a compromise where we both share a bit of the pain in a slow market. We’ve made a strategic decision to burn through certain less profitable land parcels at lower gross margins that clear the way for newer land acquisitions, which meet our historical return metrics even after the big incentives. Fortunately, we’re we’re still finding new land opportunities that meet our return hurdles, again, even after the high level of incentives and at the slower sales pace. To wrap up, we met or exceeded our expectations for the third quarter.
Regardless of market conditions, we closely monitor our communities and adjust our local strategies on a weekly basis. Given the tough operating environment, we are focusing on this even more today. Our goal is to be able to deliver strong ROE and ROI results even in difficult markets. That concludes our formal comments, and we’ll be happy to turn it over for Q and A now.
Conference Moderator: Thank you. The company will now answer questions. So that everyone has an opportunity to ask questions, participants will be limited to two questions and a follow-up, after which they will get back into the queue to ask another question. We will open the call to questions. If you’d like to ask a question, please press 11.
And our first question comes from Alan Ratner with Zelman and Associates. Your line is open.
Alan Ratner, Analyst, Zelman and Associates: Hey guys, good morning. Thanks as always for the great information so far. First, I’d love to just drill in a little bit on the improvement you guys saw in order activity in July. I’m curious if you feel like that was more macro and market driven based on maybe some of the tariff noise subsiding and rates coming down? Were there any company specific actions you guys took to drive that improvement, I.
E, higher incentives or community openings or anything like that?
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: I’d say in general, Alan, you saw with our incentives, we did increase incentives a bit this quarter versus last quarter. But overall, I’d say the market is more macro economic and political uncertainty news driven. I mean, it’s just amazing. If there’s a good headline, sales are good that week. If there’s a bad, world headline, the sale, it can go back and forth and back and forth.
But other than a slightly more buy down rate, we really didn’t do anything very different. It was more macro.
Alan Ratner, Analyst, Zelman and Associates: Got it. And then just in terms of August activity month to date, would you say that that July improvement has continued thus far or is it just remaining choppy here so far?
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: I would say Really don’t have Go ahead. I would just say it’s I would say it’s just remaining choppy.
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: I think
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: we see week week changes just like we kinda showed in the monthly data we were showing there. It just bounces back and forth.
Alan Ratner, Analyst, Zelman and Associates: Got it. Okay. Appreciate that. Second question, on the gross margin guide down sequentially, obviously, it makes sense given the strategy you guys are working through some of the maybe the underperforming assets. But I’m just curious if you can kind of give some framework on how when we you have a very helpful slide in there with the vintage of your lots and you can kind of see, I guess, the land that was underwritten during a better time.
When you think about the headwind that might continue from working through these assets, is this like a couple of quarter type phenomena? Is this something that’s likely going to persist through 2026? Just can you help frame the size of the bucket of assets that you’re kind of focusing on burning through at this point?
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: It’s hard to comment on that, and I can’t say we specifically projected. The prices and the margins are not just lot vintage driven, but are also geography driven. I mentioned earlier the markets that are mostly East Coast that are doing far, far better than some of our West Coast markets, plus Texas has been a little slower and Florida has been a little slower. So some of it depends on really burning through the tougher communities in the, tougher geographies. Having said that too, we are having some success working with our the sellers have lost to us, to share some of the pain, which helps margins, and allows us to feel more comfortable burning through some of the lower margins rather than walking from lots.
We prefer not to walk from lots where we really can avoid it. So the long winded answer is, I’m not sure we really haven’t focused on how long it’s going to be. I will say that, we’ve reduced the number of lots, that we bought in 2023 and 2024 by almost 2,000 homes and we’ve increased our recent purchases, our recent lots that we bought this year in 2025 by about a 1,000 homes. So purchases have excellent margins even with one the rate buy downs, as we’ve said several times. So when that gets into better balance, I can’t quite say, but I’m feeling pretty good about our new land acquisitions and eager to clear the road in our balance sheet to pursue more and more of the new land acquisitions.
Alan Ratner, Analyst, Zelman and Associates: That’s great. I appreciate that. And Brad, can I just squeak in one last housekeeping question? Sure. The consolidation on the JV next quarter, did you give a dollar amount?
What’s going flow through the other income line?
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: We didn’t give a dollar amount, but on those three previous transactions I mentioned, we averaged about 30,000,000 and this will probably be in that same neighborhood.
Alan Ratner, Analyst, Zelman and Associates: And that’s embedded within the pretax income Correct. Side,
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: Perfect. Thanks a lot, guys. Appreciate it. Thank
Conference Moderator: you. Our next question comes from Jay McCanless with Wedbush. Your line is open.
Jay McCanless, Analyst, Wedbush: Hey, good morning everyone. Thanks for taking my questions. I guess first, can we talk about the balance sheet and what type of debt restructuring opportunities might be out there at this point?
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: Sure. I mean, as we’ve said in the past, I’m always looking at ways to continue to improve our balance sheet. And one of those that we talked about previously with the market is the idea of refinancing our secured debt into unsecured. And it’s something we’re certainly continuing to take a look at and we’ll take advantage of if the opportunity arises. Something I’ve paid a lot of attention to on a regular basis.
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: Yeah, overall, I’d say the market for high yield, even in the home building industry is getting a little better and a little stronger. So we think there will be opportunities in the very near future.
Jay McCanless, Analyst, Wedbush: Okay, great. Thank you. And then the second question kind of following on what Alan’s asking. Are there opportunities maybe to do bulk sales in terms of moving through some of these lots, going ahead and taking an even larger gross margin hit to get that off your book so so that these newer communities and and the and the better gross margins can shine through a little easier?
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: You know, we look at that regularly, and we’re constantly looking at, you know, the potential loss in a sale or a walk away versus building out. And, we haven’t done a lot of land sales, in bulk. We have done a couple of walkaways. But generally speaking, as I mentioned earlier, we’re finding some better opportunities with sharing the pain with our land light partners. So I think that’s probably more of the strategy.
I will also say, can’t, we’ve mentioned Brad mentioned three times in the last nine quarters, we’ve had a gain from consolidation. We’ve also had probably three or four quarters with gains from land sales. So, we tend to do more of the latter, the gain from land sales than the loss from land sales. And it makes sense if you consider that 85% of our lots are optioned. We don’t have a lot of bulk land on our balance sheets today to sell in bulk at a loss.
But we do have from time to time entitled land that’s more than where the entitlements come through a little earlier than we planned and more than we need for a given market And we’ve been having good success selling those at a profit.
Brad O’Connor, Chief Financial Officer, Hovnanian Enterprises: Just to add to your comment, one of the land sales we had earlier this year was basically what you described. It was an underperforming community that we did flip to somebody else. So it’s something we do look at in there described.
Jay McCanless, Analyst, Wedbush: Got it. Okay. Great. And then the 21% of communities where you could raise price this quarter, I know they were mostly focused in the Northeast, Mid Atlantic. And I think that’s the second quarter in a row where you all seen good performance there.
But diving down a little further, is that entry level, active adult, any color you can give us on what buyer groups are resilient enough where you can raise price at this point?
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: I’d say generically, the entry level is the tougher market. We’ve had some good success in active adult, as a couple of our peers have had, and we’ve had some good success on, first time and second time move up. It’s been a more challenging environment in the tertiary super low entry price points.
Jay McCanless, Analyst, Wedbush: Okay. That’s great. Thanks for taking my questions.
Conference Moderator: Thank you. There are no further questions. I’d like turn the call back over to Ara for any further comments.
Ara Hovnanian, Chairman, President and CEO, Hovnanian Enterprises: Thank you very much. Again, we’re pleased to have met our expectations and guidance even though we’re not as good as we performed last year, but we’re excited about the opportunities in the land market and replenishing our land supply and we’ll look forward to delivering some good results. I think we’ve shown that we have a great franchise that can really deliver some industry leading ROEs and ROIs. And I think as we continue to replace our land position with newer and newer land parcels, I think our performance is going to get just that much better. Thank you very much.
Conference Moderator: Thank you. This concludes our conference call for today. Thank you for all for participating and have a nice day. All parties may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.