Hovnanian Revenue Jumps 11% in Q3

Key Points

• Revenue grew 10.8% to $800.6 million, surpassing the midpoint of outlook and This represented a 10.8% increase compared with the same quarter of the prior year.

• Diluted earnings per share (GAAP) sharply decreased to $1.99 from $9.75 the prior year, reflecting lower margins and higher land charges.

• Gross margin before interest and land charges fell significantly to 17.3%, near guidance low end, as incentives expanded.

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Hovnanian Enterprises (NYSE:HOV), one of the nation’s leading homebuilders, reported results for Q3 FY2025 on August 21, 2025. The most notable news was that it achieved GAAP revenue of $800.6 million, up 10.8% from the previous year and within its own guided range. However, net income and diluted earnings per share (GAAP) dropped sharply from the prior year, driven by a steep decline in gross profit margins. The reported EPS (GAAP) of $1.99 came in well below analyst expectations of $3.51, as profit headwinds persisted despite solid top-line growth. On the whole, the quarter demonstrated strong sales progress and disciplined land management, but with evident pressure on profitability and future backlog.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.

Company Overview and Key Success Factors

Hovnanian Enterprises builds homes for a wide variety of buyers, including first-time, luxury, and active-lifestyle customers. It operates across a large footprint, with projects in 17 of the country’s top 50 housing markets and an average home sale price of $538,000 in FY2024. Its range includes single-family homes, townhouses, and condominiums, with base prices from $62,000 to $1.91 million.

Historically, the company’s core focus has been on risk management, particularly by “optioning” lots rather than owning them outright. This “land-light” approach helps the company stay flexible as market conditions change and mitigates the risk from regulatory hurdles or market downturns. Geographic diversity, product mix, and careful cost control are all central to its strategy. The company also emphasizes strong liquidity and prudent land spending as key to its ongoing success in a cyclical industry.

Quarter Highlights: Financial and Operational Review

Revenue (GAAP) reached $800.6 million, a year-over-year increase of 10.8%. However, this top-line improvement came with rising incentives for buyers (incentives were 10.5% of the average sales price) and a push to clear older, lower-margin inventory. The gross margin percentage before interest and land charges, a key profitability indicator for homebuilders, dropped from 22.1% in Q3 FY2024 to 17.3%. This margin was within the guided range.

Net income fell to $16.6 million, down from $72.9 million in the same quarter last year. Diluted earnings per share (GAAP), at $1.99, missed expectations and reflected the same margin pressures. Adjusted EBITDA, which measures earnings before interest, taxes, depreciation, and amortization, was $77.1 million, compared with $131.0 million in the third quarter of the prior fiscal year, though above the company’s guidance. Both earnings and margins suffered as the company used larger incentives, such as mortgage rate buydowns, to support sales pace in an affordability-challenged environment.

Sales pace per community improved slightly, marking the first year-over-year increase in quarterly contracts per community. Consolidated contract sales reached 1,211 homes, up from 1,192 in Q3 FY2024, with the dollar value of contracts, including domestic unconsolidated joint ventures, dropped 5.3% to $749.0 million. This drop in contract value mirrors increased buyer incentives, meaning homes were sold at lower average prices -- the average sales price per contract fell 5.6% to $511,673. Home closings rose 14% to 1,431 units, compared with the same quarter last year.

The company saw its backlog—the value of signed but not yet delivered home contracts—decline sharply by 27.6% to $838.8 million. Management attributed some of this to a shift toward selling “quick move-in” homes, or inventory ready for immediate occupancy, which do not remain in the backlog for long. Cancellation rates increased to 19%, from 17% last year, indicating that more buyers are backing out amid rising monthly payments and affordability hurdles.

Focus Areas: Products, Regions, and Resource Management

Hovnanian targets a diverse group of buyers through its varied home offerings, which include single-family detached homes, townhomes, and condominiums. These products let the company serve first-time buyers, those moving up to larger homes, luxury buyers, and older customers looking for lifestyle communities. The continued emphasis on quick move-in homes addresses buyer demand for mortgage rate certainty and helps improve inventory turnover, especially as buyers shop for predictability in a fluctuating rate environment.

The company operates across the Northeast, Southeast, and West regions. Each region contributed differently to third-quarter results. The Northeast delivered 479 homes, up 18.6% year over year, with a slight increase in new contracts. In the Southeast, contract sales surged by 37.7%, though closings dropped, while the West reported a 3.9% decline in contracts but a 22.1% rise in deliveries. Backlog values fell across all regions, with the West seeing backlog drop by 33% to $263.3 million, compared with the same quarter last year, and the Northeast by 28% to $444.9 million, compared with the same quarter last year. This spread of business remains central to company strategy in balancing risks and opportunities across major markets.

Land acquisition and capital allocation remained disciplined. The company spent $192.6 million on land and development, down from $216.1 million in Q3 FY2024. It ended the quarter with 40,246 controlled lots, of which a record 86% were optioned rather than owned, in line with its risk management focus. Quick move-in home inventory ended at 1,016 units, nearing company targets. Liquidity rose to $277.9 million, exceeding management’s preferred range, a result of careful land spend. Return on invested capital and return on equity dropped but remained high relative to many peers for the trailing twelve-month period, signaling continued value creation even in a tough environment.

The option-based land model and careful due diligence were again cited as ways to avoid costly project delays and to adapt quickly as local regulations change.

Looking Ahead: Guidance and Areas to Watch

For the final quarter of fiscal 2025, management expects revenue between $750 million and $850 million for Q4 FY2025. It projects further margin pressure, with adjusted homebuilding gross margin guidance for Q4 FY2025 lowered to a range of 15.0% to 16.5%. Adjusted pre-tax income is expected to be in the $45 million to $55 million range for Q4 FY2025, and Adjusted EBITDA (non-GAAP) is forecasted between $77 million and $87 million for Q4 FY2025.

Investors may wish to keep an eye on several metrics in upcoming quarters. The steep decline in backlog, uptick in contract cancellations, and continued margin pressures all raise questions about future revenue and earnings stability. How long the company relies on incentives and how successful it is at selling higher-margin inventory will be critical. HOV does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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