It has been about a month since the last earnings report for Lennar (LEN). Shares have lost about 6.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lennar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lennar (LEN) Q4 Earnings and Revenues Beat Estimates
Lennar Corporation (NYSE:LEN) reported better-than-expected results for fourth-quarter fiscal 2020 (ended Nov 30, 2020). The quarterly results benefited from robust housing market fundamentals backed by low interest rates, and persistent undersupply of new as well as existing inventory. Also, solid execution of homebuilding and financial services businesses added to its bliss.
The company reported quarterly earnings of $2.82 per share, handily surpassing the Zacks Consensus Estimate of $2.38 by 18.5%. Also, the reported figure jumped 32.4% from $2.13 per share in the year-ago quarter. This marked the seventh consecutive quarter of an earnings beat. The results mainly benefited from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage.
Revenues of $6.83 billion topped the consensus mark by 4.3%. The reported figure, however, decreased 2.1% year over year.
Segment Details
Homebuilding: Revenues at the segment totaled $6.35 billion, down 2.8% from the prior-year quarter. Within the Homebuilding umbrella, home sales contributed $6.31 billion to total revenues, down 2.1% from a year ago. However, land sales accounted for $42.3 million, down 38.6% from the prior-year quarter. Lower home sales were due to reduced new home deliveries.
Home deliveries for the reported quarter declined 2.2% from the year-ago level to 16,038 units. This downside was due to production losses on account of the COVID-19 pandemic in the second quarter. The average sales price of homes delivered was $393,000, same as the year-ago figure. New orders grew 16% from the year-ago quarter to 15,214 homes. Potential value of net orders also increased 22% year over year to $6.3 billion. Backlog at fiscal fourth quarter-end inched up 21% from a year ago to 18,821. Potential housing revenues from backlog also advanced 24% year over year to $7.8 billion.
Homebuilding Margins
Gross margin on home sales was 25% for the quarter, up 350 basis points (bps). The upside can be attributed to its efforts toward reducing construction costs accompanied with solid housing market scenario.
Selling, general and administrative or SG&A expenses — as a percentage of home sales — improved 10 bps to 7.5% on improved operating leverage, given benefits from the company's technology efforts.
Financial Services: The segment’s revenues increased 2.2% year over year to $258.3 million for the reported quarter. Operating earnings came in at $151.2 million, up 102.1% from a year ago on strong mortgage business owing to higher volumes and margins.
Lennar Multi-Family: Revenues of $205.4 million at the segment increased 16.7% from the prior-year quarter. Also, the segment incurred operating earnings of $26.7 million for the quarter versus $3.7 million a year ago.
Lennar Other: The segment’s revenues totaled $7.7 million, down from $7.9 million a year ago. Operating loss was $1.2 million for the quarter against operating earnings of $10.7 million in the comparable period of 2019.
Financials
Lennar had homebuilding cash and cash equivalents of $2.7 billion as of Nov 30, 2020, up from $1.2 billion on Nov 30, 2019. Total homebuilding debt was $5.9 billion as of Nov 30, 2020 compared with $7.8 billion on Nov 30, 2019. Total homebuilding debt to capital at fiscal 2020-end was 24.9% compared with 32.8% at fiscal 2019-end. Notably, the company has no outstanding borrowings under the $2.4-billion revolving credit facility, thereby providing $5.1 billion of available capacity.
Fiscal 2020 Highlights
Full-year earnings came in at $7.85 per share, up 36.8% from the fiscal 2019 level. Revenues were $22.5 billion, up from $22.3 billion a year ago. Deliveries grew to 52,813 homes from 51,412 homes in fiscal 2019. Average sales price was down to 395,000 from $400,000 a year ago. Gross margin came in at 22.8% versus 20.6% in fiscal 2019. SG&A expenses — as a percentage of home sales — improved 20 bps to 8.1%.
Guidance
For first-quarter fiscal 2021, Lennar expects deliveries in the range of 12,200-12,500 homes; ASP within $390,000; homebuilding gross margin in the 23.5-23.75% band; and homebuilding SG&A of 8.9-9%. New orders are expected within 14,500-14,800.
For fiscal 2021, it expects deliveries in the range of 62,000-64,000 homes; ASP within $386,000-$388,000; homebuilding gross margin in the 23.75-24% band; and homebuilding SG&A of 7.8-8%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 23.5% due to these changes.
VGM Scores
Currently, Lennar has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lennar has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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