Hovnanian is a homebuilder that runs the gamut of price points
Hovnanian (HOV) is a New Jersey–based homebuilder that concentrates on everything from low-income housing to luxury housing. Last year, its price points ranged from $68,000 to over $1 million, with an average sales price of just over $300,000. It operates in 16 states. Its product offering is diverse, concentrating on first-time , first and second move-up, luxury, active adult, and urban infill buyers. It builds single-family detached homes, attached and detached townhomes, and condominiums.
Hovnanian also runs a finance and title arm. Its land acquisition strategy runs through an options-type agreement, where it pays a fee and has the right—but not the obligation—to purchase the land. If it declines to purchase the land, it loses its deposit. It’s geographically diverse, with half its revenues coming from the West and Southwest, and the balance coming from the Northeast, Mid-Atlantic, Midwest, and Southeast.
Highlights of the earnings release
Revenues increased 23.6% to $478 million. Net income reached $8.5 million, or a $0.06 a share. Deliveries totalled 1,502 homes—up 8.3% compared to the 1,387 homes delivered in the same quarter last year. The dollar value of new contracts increased 8% to $547 million from $507 million the year before. Backlog was up 18% in units and 26.8% in dollar terms. Gross margins increased by 210 basis points to 20.3%.
CEO Ara Hovnanian commented on the recent increase in mortgage rates: “We were pleased that we were able to raise home prices, grow revenues and increase our gross margin during the third quarter of fiscal 2013. Our emphasis on raising home prices combined with concerns over rising mortgage rates and weakened consumer confidence dampened our home sales during July and August of 2013. We believe we are in a period where consumers are adjusting to current home prices and mortgage rates and remain confident that the combination of pent-up housing demand and the positive long-term demographic trends for housing will drive increased demand for new homes going forward.”
Read-across to the other builders
Given that Hovnanian is a jack of all trades, it’s difficult to read across to the different homebuilders that tend to concentrate on different price points. In some ways, Hovnanian is similar to NVR, in that it has a lot of exposure to the East Coast. It’s not single-market–focused like Toll Brothers (TOL) is on the luxury segment or like Meritage (MTH) is on green and senior living.
Q1 earnings for homebuilders are largely over, and we’re in a dull period until towards the end of September, which starts confession season—when companies that will miss street estimates make pre-announcements. We’ll have to wait for Q3 announcements from the builders on a December fiscal year to see if everyone else shared Hovnanian’s experience.
© 2013 Market Realist, Inc.