Lennar's (LEN) Shares Up On Q3 Earnings And Revenue Beat

Lennar Corporation’s (NYSE:LEN) shares gained 3.2% after the company reported better-than-expected results in third-quarter fiscal 2019 (ended Aug 31, 2019). This marks two consecutive quarters of earnings beat. The results mainly benefited from a solid resurgence in demand for new homes, depicting a healthy economy and declining borrowing costs.

The company reported quarterly earnings of $1.59 per share, surpassing the consensus mark of $1.32 by 20.5%. Also, the reported figure jumped 16.1% from $1.37 reported in the year-ago quarter. The upside was mainly driven by higher deliveries and continued operating leverage backed by technological efforts.

Revenues of $5.86 billion topped the consensus estimate of $5.52 billion by 6%. The reported figure also increased 3% year over year. Moderate home prices and declining mortgage rates stimulated both affordability and demand, thereby enhancing the company’s top line during the quarter.

Segment Details

Homebuilding: Revenues from the segment totaled $5.44 billion, up 2.9% from the prior-year period. The increase was backed by a higher number of homes delivered during the quarter.

Within the Homebuilding umbrella, home sales contributed $5.33 billion to total revenues, up 2% from a year ago, and land sales accounted for $104.5 million, significantly up from the year-ago figure of $62 million. Other homebuilding revenues added approximately $4 million to total Homebuilding revenues.

Home deliveries during the reported quarter increased 7% year over year to 13,522, buoyed by a higher number of homes delivered across all the regions served by the company.

The average sales price of homes delivered was $394,000, reflecting a 5.1% year-over-year decline. The decline in selling price was owing to continued shift to lower-priced communities, higher sales incentives and an unfavorable product mix, as a larger percentage of deliveries, which came from the East segment.

New orders grew 8.5% from the year-ago quarter to 13,369 homes. Potential value of net orders increased 2.7% year over year to $5.2 billion.

Backlog at the end of the fiscal third quarter decreased 2% to 18,908. Potential housing revenues from backlog also declined 9% year over year to $7.6 billion.

Homebuilding Margins

Gross margin on home sales was 20.4% in the quarter, up 10 basis points (bps). The upside was attributable to the absence of purchase accounting adjustments on CalAtlantic Group, Inc. homes that were delivered during the comparable period of last year.

Selling, general and administrative or SG&A expenses, as a percentage of home sales, improved 20 bps to 8.3%. The improvement was due to better operating leverage, owing to increased home deliveries.

Financial Services: The segment’s revenues decreased 13.1% year over year to $224.5 million in the reported quarter. However, operating earnings came in at $78.8 million, up from $60.5 million a year ago. The upside was primarily backed by a strong mortgage business.

Lennar Multi-Family: Revenues of $184 million from the segment increased 82% from the prior-year quarter. However, the segment generated operating earnings of $10.5 million in the quarter against an operating loss of $3.9 million in the comparable year-ago period.

Lennar Other: The segment’s revenues totaled $9.6 million, down from $27.6 million a year ago. Operating earnings were $15.9 million during the quarter compared with $10.1 million in the comparable period of 2018.

Financials

Lennar had homebuilding cash and cash equivalents of $795.4 million as of Aug 31, 2019, down from $1.34 billion on Nov 30, 2018. Net homebuilding debt was $8.28 billion as of Aug 31, 2019 compared with $7.21 billion on Nov 30, 2018. Net debt to capital ratio at the end of the reported quarter was 35% compared with 33.1% at fiscal 2018-end.

During the fiscal third quarter, the company repurchased 6.1 million shares of common stock for $295.9 million.

Zacks Rank & Stocks to Consider

Currently, Lennar carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Building Products - Home Builders industry are KB Home (NYSE:KBH) , Taylor Morrison Home Corporation (NYSE:TMHC) and Meritage Homes Corporation (NYSE:MTH) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home’s earnings for fiscal 2019 are expected to increase 64.9%.

Taylor Morrison’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average being 41.8%.

Meritage Homes’ earnings topped the consensus estimate in three of the trailing four quarters, with an average positive surprise of 13.5%.

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