Shares of Hovnanian Enterprises, Inc. HOV have declined 10.6% since the company reported its earnings for the fourth quarter of fiscal 2024. This compares to the S&P 500 index’s 2% decline over the same time frame. Over the past month, the stock has dropped 7.1% compared with the S&P 500’s 4.6% decline.

HOV’s Key Financial Highlights

Hovnanian reported fiscal fourth-quarter 2024 earnings per diluted share of $12.79, down from the $13.05 reported in the year-ago quarter.

The company reported total revenues of $979.6 million for the fourth quarter of fiscal 2024, a 10.4% increase compared to $887 million in the prior-year period. The revenue increase was primarily driven by higher home sales and a rise in deliveries. Higher contracts per community and a focus on quick move-in homes supported the overall revenue jump.

Hovnanian Enterprises Inc Price, Consensus and EPS Surprise

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Other Key Business Metrics

Gross Margins: The gross margin (before interest and land charges) was 21.7% for the fourth quarter of fiscal 2024, down from 24.5% in the year-ago quarter, reflecting higher incentives and mortgage buydowns.

The homebuilding gross margin after the cost of sales interest and land charges was 18% in the fourth quarter of fiscal 2024 compared to 21.4% in the prior-year quarter.

Contracts and Deliveries: Fourth-quarter consolidated contracts rose 44.5% year over year to 1,355 homes, while full-year contracts increased by 16% to 6,007 homes. Deliveries for the year grew 12% to 6,151 homes.

Adjusted EBITDA for the fourth quarter of fiscal 2024 was $151 million, slightly down from $159.1 million in the previous year's quarter.

Costs

The cost of sales (excluding interest expense and land charges) rose to $726.5 million in the fourth quarter of fiscal 2024 from $626.4 million in the previous year's fourth quarter. SG&A expenses were $87.7 million compared to $80.8 million in the fourth quarter of fiscal 2023.

Liquidity and Debt Position

As of Oct. 31, 2024, Hovnanian reported total liquidity of $338.2 million, which includes $210 million in cash and cash equivalents and $125 million available under its senior secured revolving credit facility. This level significantly exceeds the company’s targeted liquidity range of $170-$245 million.

The company continued its focus on balancing growth with prudent financial management. During fiscal 2024, Hovnanian reduced its long-term debt by $145 million through repayments of senior notes and other liabilities.

HOV: Management Commentary

CEO Ara Hovnanian emphasized strong demand despite macroeconomic headwinds, including high mortgage rates. Management highlighted a deliberate strategy of balancing pace and price, which included providing incentives to boost contract volume. This focus on inventory turnover and return on investment supported annual land and development expenditures that reached record highs. The pivot to growth saw a record $995.4 million spent on land and land development in fiscal 2024, up 47% year over year.

Factors Influencing HOV’s Results

The decline in gross margins reflected higher costs associated with mortgage rate buydowns, which accounted for 72% of sales in the fourth quarter of fiscal 2024 and increased incentives. These adjustments, particularly in regions like the West, were implemented to sustain demand in a challenging affordability environment. Management also introduced new home designs under the "Looks" program, simplifying homebuyer choices and operational processes.

HOV’s Guidance for Fiscal 2025

Hovnanian projected first-quarter fiscal 2025 revenues between $650 million and $750 million, with gross margins expected to range from 17.5% to 18.5%. Adjusted pre-tax income is estimated at $25 million to $35 million, while adjusted EBITDA is anticipated between $55 million and $65 million. Management underscored that these forecasts are contingent on stable market conditions.

Other Developments

Hovnanian's focus on growth was evident in its 46.5% year-over-year increase in land and development spending, which totaled $995.4 million for the year. The company ended the year with 41,891 controlled consolidated lots, a 32% increase compared to 2023. This inventory represents approximately 7.8 years of supply based on recent delivery trends. This expansion supports Hovnanian's growth-oriented strategy while bolstering its land pipeline for future developments.

While Hovnanian Enterprises navigated a challenging macroeconomic environment, its strategic emphasis on growth and operational agility helped deliver improved revenues and net income for fiscal 2024. The trade-off between pace and margin, supported by high incentives and expanded community counts, remains a key theme heading into fiscal 2025.

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