Hovnanian Enterprises Q4 2025: Contradictions Emerge in Cost Management, Gross Margin Outlook, and Market Conditions

Date of Call: December 4, 2025

Financials Results

• Revenue: $818 million, down 17% year-over-year, surpassed midpoint of guidance
• Gross Margin: Adjusted gross margin 16.3%, near high end of guidance; declined year-over-year driven by higher incentives (incentives = 12.2% of ASP; +60 bps vs Q3, +370 bps vs year-ago)

Guidance:

• Q1 revenue expected $550M–$650M.
• Adjusted gross margin expected 13%–14%; company expects margins to bottom in Q1 FY'26 and gradually improve thereafter.
• SG&A expected 13.5%–14.5% of revenue.
• Income from JVs expected breakeven to $10M; adjusted EBITDA $35M–$45M; adjusted pretax income $10M–$20M (includes expected JV consolidation other income and a land sale).
• Guidance assumes stable market conditions and continued use of mortgage buydowns.

Business Commentary:

• Revenue and Profitability:
• Hovnanian Enterprises reported $818 million in revenues for the fourth quarter, surpassing the midpoint of their guidance, with an adjusted pretax income of $49 million.

• The results were driven by the company meeting or beating their guidance across key metrics despite political and economic uncertainties.

• Land Position and New Acquisitions:

• The company ended the quarter with 35,883 controlled lots, equivalent to a 6.5-year supply, and 6,500 QMIs per community.

• This reduction in lot count reflects disciplined land acquisition strategies and a focus on newer land acquisitions with higher incentives.

• Sales and Traffic Trends:

• There was an 8% drop in contracts compared to last year, but traffic increased significantly in three of the four months of the quarter.
• The sales pace was lower than normal levels, attributed to persistent political and economic uncertainty affecting buyer decisions.

• Cost Management and Margin Optimization:
• Adjusted gross margin reached 16.3% for the quarter, near the high end of guidance, despite a 60 basis point increase in mortgage rate buydowns.
• Cost management efforts, including rebidding with suppliers and trade partners, helped offset tariff-related increases.

• Financing and Debt Reduction:
• The company ended the quarter with $404 million in liquidity and reduced their net debt-to-capital ratio to 44.2%.
• Successful refinancing and strategic debt reduction efforts have strengthened the company's balance sheet and positioned it for future growth.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management emphasized they "met or beat our guidance across each of these key metrics" while acknowledging a "big reduction from last year's strong performance." CFO noted strengthened liquidity ($404M) and improved leverage (net debt to capital 44.2%). They forecast gross margins to "bottom in the first quarter of fiscal '26 and to gradually improve" as newer, higher‑underwritten land replaces older vintages.

Q&A:

• Question from Natalie Kulasekere (Zelman & Associates LLC): Are you doing anything to offset some of the pressure from gross margins? Have you seen any cost improvements, maybe direct cost improvements? Have you been able to negotiate anything lower with your vendors? Yes, just any color on that would be great.
  Response: They're rebidding suppliers and trade partners, have reduced per‑sqft costs vs two years ago and are largely holding costs flat; additionally they will promote 7‑year ARM buydowns (vs 30‑yr fixed) to lower buydown costs and help margins.

• Question from Natalie Kulasekere (Zelman & Associates LLC): When you expect gross margin to tick higher next year, is that driven by a mix impact? Or is it because you think you will be done selling through underperforming assets at that point?
  Response: Management: margin improvement will be driven by mix shift—working through older, lower‑margin vintages and bringing on 2024/2025 land acquisitions underwritten with higher incentives and better returns.

Contradiction Point 1

Cost Management and Gross Margin Improvement

It involves the company's approach to managing costs and improving gross margins, which are critical for financial health and profitability.

Are you taking steps to offset gross margin pressures? Have you seen cost improvements, particularly in direct costs? Have you negotiated lower costs with vendors? - Natalie Kulasekere (Zelman & Associates LLC)

2025Q4: We have consistently gone back in existing communities and certainly for new communities to rebid with suppliers, trade partners, et cetera. We've had some success controlling costs, reducing costs in some places. We're down pretty significantly in costs on a per square foot basis from 2 years ago. Over this year, we're basically holding steady. - Brad O'Connor(CFO)

Are there debt restructuring opportunities currently available regarding the balance sheet? - Jay McCanless (Wedbush Securities Inc., Research Division)

2025Q3: We are 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, sometimes I pay a lot of attention to on a regular basis. - Brad O'Connor(CFO)

Contradiction Point 2

Market Conditions and Sales Performance

It involves the company's perception of market conditions and their impact on sales performance, which is crucial for strategic planning and investor expectations.

Are you taking steps to mitigate gross margin pressures through cost reductions or vendor negotiations? - Natalie Kulasekere (Zelman & Associates LLC)

2025Q4: We have -- we've seen several of our peers have success with buying down a 7-year arm versus a 30-year fixed. That has 2 benefits. One, you can qualify buyers at a lower rate and at the same time, actually save cost, which helps margins. So we're going to begin advertising and promoting that program more aggressively starting this weekend. - Ara Hovnanian(CEO)

Was the improvement in July order activity driven by macro factors (e.g., reduced tariff uncertainty, lower rates) or company-specific actions (e.g., higher incentives, community openings)? - Alan S. Ratner (Zelman & Associates LLC)

2025Q3: I'd say, in general, Alan, as 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 macroeconomic 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 buydown rate, we really didn't do anything very different. It was more macro. - Ara Hovnanian(CEO)

Contradiction Point 3

Gross Margin Improvement Expectations

It involves differing expectations for gross margin improvement, which is a crucial financial indicator for investors.

Will next year's gross margin increase be due to a shift in product mix, or will you have completed selling off underperforming assets by then? - Natalie Kulasekere (Zelman & Associates LLC)

2025Q4: Gross margins are expected to improve in Q1 2026 as we expect to work through our remaining older, more challenging properties and bring on new land deals identified in 2024 and 2025. - Brad O'Connor(CFO)

Your margin guidance for next quarter indicates flat to higher margins. Given that demand hasn't improved and incentives remain high, what other factors besides typical seasonal uplift support this outlook? - Natalie Kulasekere (Zelman & Associates)

2025Q2: We expect our gross margins for the third quarter to be around 17.3%. Our gross margin guidance for the third quarter is between 17% and 18%. - Brad O'Connor(CFO)