Hovnanian Enterprises ended its fiscal third quarter with a larger dollar backlog despite a double-digit decline in quarterly revenue, while a dramatic reduction in inventory impairments and land-option write-offs suggests the homebuilder’s inventory position is improving.
Total revenue fell to $705.7 million from $800.6 million in the prior-year quarter, a decline of approximately 12%. Hovnanian nevertheless said the result was within its previously issued guidance range.
The more forward-looking backlog measure moved in the opposite direction.
Consolidated domestic contract backlog increased 5.1% year-over-year to $881.9 million from $838.8 million. Including unconsolidated domestic joint ventures, backlog increased 4.8% to $1.16 billion from $1.10 billion.
Another important change occurred deeper in the income statement.
Inventory impairments and land-option write-offs fell to just $493,000 from $16.0 million in the prior-year quarter, a decline of roughly 97%.
That reduction supports management’s view that Hovnanian is working through older inventory and increasingly allocating capital toward communities acquired under current housing-market conditions.
The company has also reduced speculative inventory. Hovnanian reported 820 quick move-in homes at quarter-end, down about 19% year-over-year, while finished quick move-in inventory fell roughly 40%. Approximately 87% of the company’s controlled lots were optioned, which management described as the highest percentage in company history.
Margins remain a challenge. Homebuilding gross margin before interest and land charges was 14.6%, compared with 17.3% a year earlier. However, that measure improved sequentially for the second consecutive quarter. After interest and land charges, homebuilding gross margin was 11.8%, slightly above 11.7% a year earlier.
Hovnanian reported a $2.8 million pretax loss, compared with pretax income of $23.8 million a year earlier. Net loss available to common shareholders was $4.5 million, or $0.70 per share, compared with net income of $13.9 million in the prior-year quarter.
For the fiscal fourth quarter, Hovnanian expects revenue of $800 million to $900 million, adjusted homebuilding gross margin of 15% to 16.5%, adjusted pretax income of $15 million to $30 million and adjusted EBITDA of $50 million to $65 million.
KEY QUOTE:
“Our inventory position is healthier, our land portfolio is increasingly aligned with today’s market conditions, and our balance sheet remains strong.”
Ara K. Hovnanian, Chairman of the Board, President and CEO of Hovnanian Enterprises
