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Lennar Overcomes Weather, Beating Analysts' Q4 Views

Lennar (LEN) on Thursday became the second homebuilder in as many days to deliver better-than-expected quarterly results as rising home prices and new orders helped offset the severe winter in some markets.

Reporting before the market open, Miami-based Lennar logged earnings of 35 cents a share for its fiscal first quarter, ended in February. That was vs. 26 cents a year earlier and 7 cents over consensus views.

Revenue rose 37% to $1.36 billion, atop estimates for $1.28 billion. Lennar delivered 3,609 homes in Q1, a 13% year-over-year gain.

Lennar's results followed those of Los Angeles-based KB Home (KBH), which easily topped fiscal Q1 sales and earnings views on Wednesday.

Both companies faced challenging weather in some markets. New-home construction in the U.S. declined for the third straight month in February, according to a Tuesday report from the Commerce Department, which said harsh weather was partly to blame.

However, KB and Lennar both got a boost from higher home prices during the quarter.

A Pop In Prices

KB's average selling price rose 12% from a year earlier to $305,200. Lennar saw a 17% increase in the average sale price, to $316,000. Lennar's new orders rose 10% to 4,465 homes — a promising indicator of future revenue.

"Despite harsh weather conditions that impacted sales and construction during the quarter in some of our markets, we were able to achieve healthy year-over-year increases in both new orders and deliveries," CEO Stuart Miller said in a statement.

He also sounded upbeat about the overall condition of the U.S. housing market.

"Although it is still too early to predict the strength of the spring selling season, we are optimistic that the housing market is continuing to recover, and that the fundamental drivers of that recovery remain intact," Miller said. "We believe that the housing market is still in the early stages of recovery.

In a Thursday morning note, Sterne Agee analyst Jay McCanless said Lennar's average home in backlog was priced at $342,315 vs. his forecast of $325,000. He also said Lennar offered fewer incentives during the first quarter.

"We believe this is a positive indicator for Lennar's pricing power in the market," McCanless noted. "Along with the reduced incentives, it suggests to us that builders can still take price rather than give price in the current environment.

The Commerce Department reported that building permit applications in the U.S. reached their highest level in four months in February, which bodes well for homebuilders in coming months.

After a nearly 2% gain Wednesday and strong open Thursday, Lennar stock closed down more than 2% — other builders fell similarly — after the National Association of Realtors reported an existing-home sales pace of 4.6 million in February, down 7.1% from a year ago and under analysts' consensus expectation. KB fell nearly 3%.

IBD's Building-Residential industry group is up 8% this year. It's ranked No. 47 of 197 groups tracked. Lennar is its largest by market cap, then Pulte Group (PHM), D.R. Horton (DHI) and Toll Bros. (TOL)