Hovnanian Posts Strong YOY Orders; Gross Margins Dip

Hovnanian Enterprises Inc. reported that its fourth-quarter gross margin percentage had dipped year-over-year, but was still above analyst projections as it released its fourth quarter and year-end fiscal results on Friday.

The New jersey-based builder posted fourth-quarter gross margins of 18%, compared with 19.3% in last year’s fourth quarter and 17.8% for the third quarter of fiscal 2015. Gross margins for the fiscal year were 17.6% compared with 19.9% in the previous year. The fourth quarter and fiscal year both ended on Oct. 31.

J.P. Morgan’s Michael Rehaut estimated the company would post gross margins of 17.6% in the fourth quarter and said he expects a “modestly positive reaction” by the stock after 4Q EPS also beat estimates and the company guidance.

Orders also beat Rehaut’s estimate as they “rose 18% YOY, above our 13% estimate, as absorption (sales pace) rose 10%, modestly above our 7% estimate, and average community count rose 7%, slightly above our 6% estimate,” he said. Orders jumped 131% in the West, which led to the sizable growth, Rehaut noted, adding that he continues to rate the company neutral, relative to its peers.

Total revenues were $693.2 million in the fourth quarter of 2015, a decrease of 0.7% compared with $698.4 million in the fourth quarter of 2014. For the 12 months ended Oct. 31, total revenues increased 4.1% to $2.15 billion, compared with $2.06 billion in the prior fiscal year.

Ara K. Hovnanian, chairman of the board, president, and CEO, said in a release that he was happy with his company’s performance. “We were pleased that we exceeded the guidance we gave for gross margin percentage, total SG&A ratio, and adjusted pretax profit for the fourth quarter of fiscal 2015, despite some delays in delivering homes primarily related to longer cycle times in certain markets,” he said.

The company reiterated its guidance for fiscal 2016, as they expect total revenues to be between $2.7 billion and $3.1 billion. “Our 71% growth in inventory over the past three years combined with the 49% year-over-year increase we achieved in our contract backlog dollars at October 31, 2015, and the 29% year-over-year increase in net contract dollars during the fourth quarter of fiscal 2015, give us confidence in our ability to significantly increase revenues and profitability during fiscal 2016,” Hovnanian said. “Given the $300 million of land banking arrangements that we recently announced, we are comfortable with our liquidity position as we begin fiscal 2016.”