Lennar (LEN) Q3 Earnings Beat, Orders Rise, Stock Falls
Lennar Corporation LEN reported better-than-expected results for third-quarter fiscal 2023. Its earnings and revenues surpassed the Zacks Consensus Estimate.
Both the top and bottom lines declined on a year-over-year basis. Following the results, the company’s shares slipped 0.59% in the after-hours trading session on Sep 14.
Improving supply chain and labor market has positively impacted the company’s production times and reduced cycle time sequentially to 32 days.
Quarterly Numbers
LEN reported adjusted quarterly earnings (excluding mark-to-market losses on technology investments) of $3.91 per share, which surpassed the Zacks Consensus Estimate of $3.47 per share by 12.7% but decreased 24.5% year over year.
Lennar Corporation Price, Consensus and EPS Surprise
Lennar Corporation price-consensus-eps-surprise-chart | Lennar Corporation Quote
Revenues of $8.73 billion topped the Zacks Consensus Estimate of $8.53 billion by 2.4% but fell 2.3% year over year.
Segment Details
Homebuilding: The revenues of the segment totaled $8.32 billion, down 1.9% from the prior-year quarter. Under the Homebuilding umbrella, home sales contributed $8.286 billion to total revenues, down 1.8% from a year ago.
Land sales accounted for $20.4 million, down 36.9% from $32.4 million in the prior-year quarter. The Other homebuilding unit contributed $12.3 million to homebuilding revenues, up from $7.97 million a year ago.
Home deliveries for the reported quarter improved 8% from the year-ago level to 18,559 units. The average sales price of homes delivered was $448,000, down 9% from the year-ago figure due to pricing to market and product mix.
New orders rose 36.9% from the year-ago quarter to 19,666 homes. The potential value of net orders also increased by 29.8% year over year, to $8.64 billion.
Backlog at the fiscal third quarter end declined 17.1% from a year ago to 21,321 homes. Potential housing revenues from backlog decreased 23.5% year over year to $9.9 billion.
The gross margin on home sales was 24.4% for the quarter, down 480 basis points (bps). The downside was due to low revenues per square foot as LEN priced homes to market. Costs per square foot also decreased due to lower material costs. Land costs increased year over year.
Selling, general and administrative or SG&A expenses — as a percentage of home sales — improved by 120 bps to 7%.
Financial Services: The segment’s revenues increased year over year to $266.2 million from $202.1 million for the reported quarter. Operating earnings for the quarter increased to $148 million from $63 million a year ago.
Lennar Multi-Family: Revenues of $137.4 million in the segment were down from $243.1 million in the prior-year quarter. The segment registered an operating loss of $9 million for the quarter against earnings of $46 million a year ago.
Lennar Other: The segment’s revenues totaled $7.4 million, down from $9.8 million a year ago. The segment’s operating loss was $26 million for the quarter compared with $118 million in the comparable period of 2022.
Financials
At the fiscal third quarter’s end, Lennar had homebuilding cash and cash equivalents of $3.89 billion, down from $4.62 billion at the end of fiscal 2022. Total homebuilding debt was $3.32 billion as of Aug 31, down from $4.05 billion at the fiscal 2022-end. Homebuilding debt to capital at the fiscal third-quarter end was 11.5%, down from 14.4% at the fiscal 2022-end and 15% in the year-ago period.
LEN has no outstanding borrowings under the $2.6 billion revolving credit facility, thereby providing $6.5 billion of liquidity.
The company repurchased 3 million shares for $366 million at an average share price of $121.96 in the fiscal third quarter.
Guidance
For fourth-quarter fiscal 2023, the company expects deliveries within 21,500-22,500 homes with ASP to be the same as the fiscal third quarter’s level. In a year ago period, deliveries were 20,064 homes at an ASP of $483,000.
Gross margin on home sales is expected to be 24.4-24.6%. SG&A expenses, as a percentage of home sales, are likely to be within 6.7-6.9% for the quarter. In the prior year, gross margin was 24.8% and SG&A was 5.8%.
New orders are likely to be within 16,200-17,200 units compared with 13,200 homes a year ago.
Financial Services operating earnings are expected to range from $130-$135 million in the fiscal fourth quarter.
Zacks Rank & Other Stocks to Consider
Lennar currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the same space are PulteGroup Inc. PHM, Toll Brothers, Inc. TOL and Meritage Homes Corporation MTH, each carrying a Zacks Rank #1.
PulteGroup: Based in Atlanta, GA, this homebuilder has been benefiting from a prudent land investment strategy, a focus on entry-level buyers and the return of more free cash flow to shareholders. PulteGroup’s annual land acquisition strategies have been resulting in improved volumes, revenues and profitability for quite some time now. The company has been reaping benefits from the successful execution of strategic initiatives to boost profitability, with a focus on entry-level homes. Its solid operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups, has been a major tailwind.
The Zacks Consensus Estimate for PHM's 2023 and 2024 earnings has been upwardly revised by 12.3% and 9%, respectively, over the past 30 days. Its earnings topped consensus estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 19.5%.
Toll Brothers: Based in Horsham, PA, Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and its solid backlog level. This, combined with its focus on operational efficiency, has been helping TOL drive growth. Meanwhile, the company has been strategically adding more affordable luxury communities because of the current demographic trends and expanding its footprint and customer base. These communities are expected to be more capital-efficient.
Earnings estimates for fiscal 2023 have increased to $11.59 per share from $10.61 over the past seven days. TOL’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 31.4%.
Meritage Homes: Based in Scottsdale, AZ, Meritage Homes is one of the leading designers and builders of single-family homes. Its focus on entry-level LiVE.NOW homes has been a major driving factor. Although the combined effect of greater sales incentives and continued elevated direct costs has been impacting the company’s gross margins, MTH is particularly focused on increasing gross margins and maximizing profits on every sale. To this end, it is making homes out of speculations that promise faster delivery at a lower cost. Meritage Homes’ strategic shift to a pure-play entry-level and first-move-up builder is expected to yield higher absorptions, aided by an improving community count growth trajectory.
MTH has seen an upward estimate revision for 2023 and 2024 earnings by 25.2% and 22.6% over the past 30 days, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 24.1%.
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