Hovnanian fell short of its own guidance for the first time in more than five years, and swung to a quarterly loss

Hovnanian has guided to a quarterly profit number and hit it for more than five years. Not this time.

Hovnanian Enterprises reported third quarter results on Thursday morning for the three months to 31 July, and adjusted income before income taxes came in below the range it had guided to. In the words of its chairman and chief executive, Ara K. Hovnanian:

this marks the first time in more than five years that we reported adjusted pretax income below our guided range

The exhibit attributes that outcome mainly to income from unconsolidated joint ventures arriving at the low end of guidance. Revenues, gross margin, SG&A and adjusted EBITDA were all reported as within or better than the ranges given.

The quarter

Total revenues were $705.7m, against $800.6m a year earlier. Loss before income taxes was $2.8m, against income of $23.8m. Net loss available to common stockholders was $4.5m, or $0.70 per diluted share, where the same quarter last year produced net income of $13.9m and $1.99 per diluted share. Adjusted EBITDA was $31.9m against $77.1m.

Gross margin moved the other way. Before cost of sales interest expense and land charges it was 14.6 percent, down from 17.3 percent a year ago but up for the second quarter running from the trough at the start of the fiscal year. SG&A was $86.9m, lower in dollars than last year and higher as a share of revenue, at 12.3 percent against 11.3 percent, which is what happens when costs fall more slowly than sales.

Fewer homes, worth more

Consolidated domestic contracts fell 4.6 percent to 1,155 homes. Their dollar value rose, from $619.6m to $622.6m. That works out at about $539,000 a contract this year against about $511,600 last year. The company gives no reason for the change and none is inferred here.

The backlog moved the same way. Its dollar value was $881.9m at the end of July, 5.1 percent above the $838.8m a year earlier. The gross cancellation rate was 19 percent, unchanged. Community count was 123, against 124.

The land position

This is where the strategy is visible. Total domestic controlled lots were 34,373, down from 40,246 a year ago, and 87 percent of them were under option rather than owned, which the company says is the highest proportion in its history. Quick move-in homes, the finished and near-finished inventory a builder carries, were 820 against 1,016, a fall of 19.3 percent. Finished ones were down 39.9 percent, to 194.

Liquidity was $379.8m, well above the stated target range of $170m to $245m.

For the fourth quarter the company guided to revenues of $800m to $900m, adjusted homebuilding gross margin of 15.0 to 16.5 percent, adjusted income before income taxes of $15m to $30m and adjusted EBITDA of $50m to $65m.