Hovnanian Enterprises Inc Stock Earnings Reports

Q1 Fiscal 2025 Earnings Call

1. Financial Performance:

• Revenue: Hovnanian reported revenues of $674 million, which was at the low end of guidance due to fewer deliveries and delays. This represents a 13% increase compared to last year's first quarter.
• Gross Margin: Adjusted gross margin was 18.3%, near the high end of guidance but lower than the previous year, mainly due to increased incentives (9.7% of average sales price).
• Adjusted EBITDA: Reported at $72 million, above the high end of guidance.
• Pre-tax Income: Adjusted pre-tax income of $41 million, also above guidance, demonstrating improved profitability.

2. Sales and Deliveries:

• Contracts per community were steady year-over-year at 9.6, which is significantly higher than the quarterly average since 1997.
• Monthly contract growth was volatile, with significant fluctuations from November (55% increase) to January (10% decrease).
• The company is leveraging quick move-in homes (QMIs), which accounted for 69% of sales, to help homebuyers with current mortgage rates.

3. Market Conditions:

• Current housing market remains volatile, influenced by various external factors like interest rates, inflation, and geopolitical concerns.
• There is an ongoing reliance on mortgage rate buy downs to maintain affordability for buyers in a high-rate environment.

4. Land Strategy:

• The company is focusing on a land-light strategy, increasing the percentage of optioned lots to 84%, and controlling a 7.8-year supply of lots.
• Community count is expected to grow, with delays in opening new communities principally due to utility hookups and permitting issues.

5. Guidance for Q2 FY2025:

• Projected total revenues between $675 million and $775 million, with an adjusted gross margin expected in the range of 17.5% to 18.5%.
• Anticipated adjusted pre-tax income between $20 million and $30 million, factoring in previous contributions to joint ventures.

6. Stock Valuation:

• Hovnanian's stock trades at a significant discount compared to peers, despite high returns on equity (33%) and return on investment (29.8%). The management believes that strong financial performance and a solid balance sheet will eventually be recognized by the market.

7. Conclusion:

• Management remains optimistic about the long-term fundamentals of the housing market despite short-term volatility. Continuous focus on pace over price is aimed at sustaining growth and profitability.