Sequential Margin Improvement
Adjusted gross margin improved sequentially to 14.3% in Q2 (from 13.4% in Q1), exceeding the upper end of guidance and marking a 0.9 percentage point sequential increase after management characterized Q1 as the trough.
Hovnanian Enterprises
· HOV
May 21st, 2026
Summary
- Earnings Call Date:
- 2026-05-21
- Change Since:
- +22.88%
- Next Earnings Date:
- 2026-09-03
Earnings Call Sentiment
PositiveThe call conveyed a cautiously positive tone: management reported sequential improvements in gross margin, declining incentives, stronger liquidity, reduced QMI inventory, and operational efficiencies while still facing year-over-year revenue and delivery declines, elevated incentive levels versus last year, modest near-term profit guidance, and ongoing macro-related volatility. The company emphasized disciplined land underwriting, a land-light approach, and expectation of sequential improvement into Q4, balancing current margin pressure with clear actions to improve returns over time.
Company Guidance
For the third quarter of fiscal 2026 the company guided total revenues of $650–$750 million, adjusted gross margin of 14.0%–15.0%, SG&A of 12.5%–13.5% of revenues, JV income between breakeven and $10 million, adjusted EBITDA of $30–$40 million, and adjusted pretax income between breakeven and $10 million; the outlook assumes broadly stable market conditions (no material increases in mortgage rates, tariffs, inflation, cancellation rates or construction cycle times), continued use of mortgage-rate buy downs and similar incentives, and excludes any SG&A impact from Phantom stock expense tied to the $112.44 quarter‑end share price — management noted Q3 profits would be modest but expects a sequential rebound in adjusted pretax income in Q4, and warned results remain sensitive to closing timing and mix (particularly the share of quick‑move‑in homes).
Revenue and Profitability Near Guidance with Outperformance on EBITDA
Total revenues were $668 million (near the midpoint of guidance). Adjusted EBITDA was $41 million (above projected range) and adjusted pretax income was $9 million (at the top end of forecast).
Incentives Begin to Decline Sequentially
Incentives were 11.9% of average sales price in Q2, down 70 basis points versus Q1 — the first sequential decline in nearly two years — signaling early improvement in the incentive environment.
Strong Liquidity and Capital Discipline
Liquidity ended the quarter at $442 million (well above the target range) after $232 million of land and development spend and $10 million of share repurchases; balance sheet progress includes equity growth of $13 billion and debt reduction of $749 million since fiscal 2020.
Inventory and Quick-Move-In (QMI) Progress
Total QMIs declined from 1,160 in Jan 2025 to 731 in Apr 2026 (a 37% reduction year-over-year). Finished QMIs decreased 55% year-over-year (from 304 to 137). QMIs per community were 5.8 and QMIs accounted for 68% of sales (down from 79%).
Operational Efficiency & Cycle Time Gains
Construction cycle times improved by 6 days to 138 calendar days year-over-year, and 41% of homes were both sold and closed in the same quarter (highest recorded), driving a backlog conversion rate of 85% versus a historical average of ~61%.
Improved Land Positioning and Land-Light Strategy
Domestic lots controlled totaled 33.6k (6.5-year supply) and total domestic lot count declined 21% year-over-year; 86% of lots are option-controlled (up from 45% in FY2020), reflecting a shift to a land-light model.
Relative Competitive Strength and Returns
Contracts per community ranked second highest among public builders (11.2/11.3 depending on quarter convention) and management reported the highest adjusted EBIT return on investment among midsized peers at 15.9% and the second-highest inventory turnover rate versus peers.
Operator
Good morning, and thank you for joining us today for Hovnanian Enterprises Fiscal 26 Second Quarter Earnings Conference Call. An archive of the webcast will be available after completion of the call and run for 12 months. This conference is being recorded for rebroadcast and all participants are currently in a listen-only mode. Management will make some opening remarks about the second quarter results and then open the line for questions. The company will also be webcasting a slide presentation along with the opening comments from management. The slides are available on the Investors page of company's website at www.khov.com. Those listeners who would like to follow along should now log on to the website. I would like to turn the call over to Jeffrey O'Keefe, Vice President, Investor Relations.
Jeffrey, please go ahead.
Jeffrey T. O'Keefe
Thank you, Didi, and thank you all for participating in this morning's call to review the results for our second quarter. All statements in this conference call that are not historical facts should be considered as forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 2000. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance or achievements of the company to be materially different from any future results, performance, or achievements expressed or implied by the forward looking statements. Such forward looking statements include, but are not limited to, statements related to the company's goals, and expectations wi...
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