Hovnanian Q1 2026 revenue guidance $550M–$650M, margin bottoming forecast in strategic shift

Management View
CEO Ara Hovnanian stated that "despite persistent political and economic uncertainty at home and abroad, our team delivered results meeting or beating our guidance across each of these key metrics." He highlighted that revenues reached $818 million, adjusted gross margin was 16.3%, SG&A was 11.2%, income from unconsolidated joint ventures totaled $13 million, adjusted EBITDA was $89 million, and adjusted pretax income was $49 million.
Hovnanian pointed out that total revenues declined by 17% year-over-year due to a 13% reduction in deliveries and the absence of a significant land sale from the prior year. He emphasized that the company is prioritizing sales pace over price and moving through lower-margin lots, preparing for higher-margin performance as newer land acquisitions come online.
The CEO explained that incentives, primarily mortgage rate buydowns, accounted for 12.2% of the average sales price, an increase of 60 basis points from the previous quarter, and that "were it not for the considerable cost of making homes affordable through mortgage rate buydowns, our gross margins would actually be quite robust."
Hovnanian noted that buyer traffic per community has increased in three of the past four months, but many remain hesitant due to economic and world uncertainty. The number of Quick Move In Homes (QMIs) per community has declined for three consecutive quarters, with 6.5 QMIs per community at quarter end.


CFO Brad O'Connor reported, "During the fourth quarter of fiscal 2025, we assumed control of 2 previously unconsolidated joint ventures...recording a gain of $18.9 million in other income."
Outlook
The company expects total revenues for Q1 fiscal 2026 to be between $550 million and $650 million. Adjusted gross margin is projected in the range of 13% to 14%. SG&A as a percentage of revenues is anticipated to be between 13.5% and 14.5%.
O'Connor stated, "We expect our gross margin percentage to bottom in the first quarter of fiscal '26 and to gradually improve in the following quarters."
Income from joint ventures for the first quarter is expected to be between breakeven and $10 million, with adjusted EBITDA guidance of $35 million to $45 million, and adjusted pretax income forecasted between $10 million and $20 million.
Financial Results
Revenues for Q4 were $818 million, with adjusted gross margin at 16.3% and SG&A at 11.2%. Income from unconsolidated joint ventures totaled $13 million. Adjusted EBITDA and adjusted pretax income were $89 million and $49 million, respectively.
The company ended the quarter with 156 communities open for sale and 35,883 controlled lots, reflecting a 14% year-over-year decrease in lots.
Liquidity was reported at $404 million following $199 million in land and development spend. Net debt to capital improved to 44.2% from 146.2% at the start of fiscal 2020.
Q&A
Natalie Kulasekere, Zelman & Associates: Are you doing anything to offset some of the pressure from gross margins? Have you seen any cost improvements, maybe direct cost improvements? Have you been able to negotiate anything lower with your vendors? Yes, just any color on that would be great. Brad O'Connor: "We have consistently gone back in existing communities and certainly for new communities to rebid with suppliers, trade partners, et cetera. We've had some success controlling costs, reducing costs in some places. We're down pretty significantly in costs on a per square foot basis from 2 years ago. Over this year, we're basically holding steady."
Ara Hovnanian added that the company plans to promote 7-year ARM products to help buyers qualify at lower rates and save costs, stating, "if it's as successful as we're seeing, that incremental portion of our buyers that use a 7-year arm will help our margins."
Kulasekere: When you expect gross margin to tick higher next year, is that driven by a mix impact? Or is it because you think you will be done selling through underperforming assets at that point? Brad O'Connor: "It's a mix because you're working through the older stuff. So yes, as we continue to work through the older, more challenging property and bring on deals we identified in 2024 and 2025, that mix shift to newer land will help our margins improve."
Sentiment Analysis
Analysts maintained a neutral to slightly constructive tone, focusing on cost controls and recovery in margins, and seeking clarity on margin improvement drivers.
Management remained cautiously optimistic, emphasizing strategic execution and cost discipline, with Hovnanian stating, "we're pleased that we met or beat all of our guidance metrics, disappointed in the absolute results, but we look forward to our performance bottoming out in this upcoming quarter."
Compared to the previous quarter, analyst sentiment was consistent in probing margin recovery, while management showed sustained confidence but acknowledged market headwinds more directly.
Quarter-over-Quarter Comparison
Current quarter guidance for Q1 2026 is lower than the prior quarter's Q4 2025 guidance, reflecting ongoing margin pressure and market volatility.
Management reiterated a strategic focus on shifting to newer land acquisitions with higher embedded incentives, in contrast to previous quarters where the focus included replenishing lots and debt reduction.
Analysts continued to press on cost, margin improvement, and the mix shift from older to newer assets, while management provided clearer expectations on margin recovery timing this quarter.
The tone of management remained realistic with a measured outlook, mirroring the cautious optimism of the prior quarter.
Risks and Concerns
Management cited persistent political and economic uncertainty, high mortgage rates, and buyer hesitation as ongoing risks.
The cost of mortgage rate buydowns remains a significant margin pressure, with incentives reaching 12.2% of sales price.
Lot count decreased for the third consecutive quarter, reflecting disciplined acquisition but also market headwinds.
O'Connor referenced risk mitigation through walkaways from less attractive lots and strategic use of options.
Final Takeaway

Hovnanian Enterprises emphasized that while current results reflect a challenging housing environment and significant margin pressure from incentives, its operational focus on sales pace, inventory management, and strategic land acquisitions is laying the groundwork for improved performance. Management believes margins will bottom in the upcoming quarter and expects a gradual recovery as newer, higher-return land comes online, supported by continued cost controls and a strengthened balance sheet.

Read the full Earnings Call Transcript

https://www.msn.com/en-us/money/topstocks/hovnanian-outlines-q1-2026-revenue-guidance-of-550m-650m-with-margin-bottoming-forecast-amid-strategic-shift-to-new-land-acquisitions/ar-AA1RIYnX