Lennar Tops 1Q Earnings & Revs

Zacks

Lennar Corporation (LEN) reported net earnings of 26 cents per share in the first quarter of fiscal 2013, beating the comparable prior-year earnings by 225%. The earnings beat was driven by double-digit growth in homebuilding revenues and solid operating margins. Earnings also surpassed the Zacks Consensus Estimate of 13 cents by 100%.

In the quarter, the company reversed $25.1 million of deferred tax asset valuation allowance of the $63.7 million that remained at the end of the Feb 28. After adjusting for an income tax provision of $21.5 million related to pre–tax earnings, the net income tax benefit was $3.6 million.

Total revenue in the quarter grew 36.6% year over year to $990 million, driven by both pricing and volume growth in a stabilizing housing market. Home closings, new orders, and backlog were all up in double digits from the year-ago period. Revenues also beat the Zacks Consensus Estimate of $934 million by 6.0%.

Quarter Details

Homebuilding revenues grew 39.1% year over year to $868.4 million, driven by solid home sales. Home sales were $855.1 million in the quarter, up 40% year over year driven by improved sale prices and an impressive increase in the number of homes delivered. Land sales amounted to $13.4 million in the quarter, down 2.2% year over year. The company spent $500 million on land purchase in the quarter.

New home orders increased 34% to 4,055 homes in the first quarter of 2013. The boom in net orders was due to a steady recovery in the housing market. This was backed by higher consumer confidence, stabilizing home prices and low interest rates. Buyers choose to purchase homes as renting became an expensive option.

New home deliveries, excluding unconsolidated entities, were up 28% year over year to 3,174 homes in the reported quarter. It was driven by an increase in demand in all homebuilding segments. The average sales price of homes delivered stood at $269,000, up 9.3% year over year as the housing market continues to stabilize.

Backlog grew 82% in the quarter to 4,922 homes. Potential housing revenues from backlog rose 105% to $1.5 billion. The company has begun to witness reduced sales incentives in some of its communities. Sales incentives comprised 8.0% of home sales revenues in the first quarter, lower than 12.2% in the prior-year quarter.

Gross margin on home sales expanded 120 basis points to 22.1% on the back of a rise in average sales price, increased number of deliveries from higher margin communities, and reduced incentives, which offset headwinds from rising labor and material costs. Operating margin on home sales improved 410 basis points to 10.1%, driven by price increases and incentive reductions.

Selling, general and administrative (SG&A) expenses were $102.2 million in the first quarter of 2013, up 12.2% over the prior-year period. As a percentage of sales, however, SG&A improved 290 basis points to 12.0% driven by better operating leverage due to higher absorption rate.

Financial Services

Financial Services segment revenues climbed 40.6% to $95.9 million in the quarter driven mainly by growing homebuilding operations and robust refinancing transactions. The operating earnings of Financial Services were $16.1 million in the first quarter of 2013 compared with $8.3 million in the prior-year quarter.

The improvement in profit was primarily attributable to higher volumes and margins in the segment's mortgage operations due to increased number of homes delivered and refinance transactions.

Rialto Investments

Rialto Investments revenues slipped 20.5% to $25.6 million in the quarter, owing to decline in interest income as a result of decrease in loan portfolios. Operating earnings declined 72.5% year over year to $1.4 million (net of $0.3 million net earnings attributable to non-controlling interest) due to lower interest income as a result of a decrease in the loans portfolio.

Outlook

The company expects to continue to achieve further profitability in fiscal 2013 on the back of rising home prices, strong liquidity position, solid backlog, strategic land acquisitions and new community openings.

Lennar carries a Zacks Rank #3 (Hold).

Stocks in the homebuilding sector that are performing well and deserve a mention include NVR Inc. (NVR) carrying a Zacks Rank #1 (Strong Buy), and D. R. Horton Inc. (DHI) and Hovnanian Enterprises Inc. (HOV), carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on LEN

Read the Full Research Report on DHI

Read the Full Research Report on HOV

Read the Full Research Report on NVR

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