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Lennar Reports First Quarter EPS of $0.74

MIAMI, March 27, 2019 /PRNewswire/ --

  • Net earnings of $239.9 million, or $0.74 per diluted share, compared to net earnings of $136.2 million, or $0.53 per diluted share
  • Deliveries of 8,820 homes – up 30%
  • New orders of 10,463 homes – up 24%; new orders dollar value of $4.2 billion – up 23%
  • Backlog of 17,259 homes – down 2%; backlog dollar value of $7.1 billion – down 7%
  • Revenues of $3.9 billion – up 30%
  • Homebuilding operating margins of $384.9 million, compared to $258.1 million
  • Financial Services operating earnings (net of noncontrolling interests) of $21.8 million, compared to $25.9 million
  • Multifamily operating earnings of $6.8 million, compared to operating loss of $1.2 million
  • Homebuilding cash and cash equivalents of $853 million
  • Homebuilding debt to total capital of 38.5%

Lennar Corporation (NYSE:LEN and LEN.B), one of the nation's leading homebuilders, today reported results for its first quarter ended February 28, 2019. First quarter net earnings attributable to Lennar in 2019 were $239.9 million, or $0.74 per diluted share, compared to first quarter net earnings attributable to Lennar in 2018 of $136.2 million, or $0.53 per diluted share.

Stuart Miller, Executive Chairman of Lennar, said, "We are pleased to announce our results for the first quarter where we achieved net earnings of $239.9 million, or $0.74 per diluted share, compared to $136.2 million, or $0.53 per diluted share in the prior year. Our new order growth exceeded the high end of our guidance by 5%, while our deliveries fell short of guidance primarily due to well-documented weather issues across the country. Even with lower than expected revenues in the first quarter, our continued focus on homebuilding operating efficiencies allowed the Company to increase operating earnings at a higher rate than revenues."

Mr. Miller continued, "We continued to see choppiness in the marketplace during our first quarter, consistent with what we highlighted on our fourth quarter conference call. However, during the quarter, mortgage interest rates subsided and ultimately pulled back and home prices moderated providing a catalyst for the new home market to correct itself. Accordingly, sequentially throughout the first quarter, we saw increased interest in new home purchases as part of an improving and stabilizing housing market. We continue to believe that the basic underlying housing market fundamentals of low unemployment, higher wages and low inventory levels remain favorable."

"During the first quarter, we advanced our strategy of reverting to our pure-play core homebuilding platform. We completed the sale of our Berkshire Hathaway real estate brokerage business, the majority of our retail title business along with our title insurance underwriter and our retail mortgage business."

Rick Beckwitt, Chief Executive Officer of Lennar, said, "Despite the uneven market conditions in the first quarter, we produced strong results. Our core homebuilding operations continued to leverage our size and scale in the leading markets. Our homebuilding gross margin was 20.1%, while our SG&A of 9.5% marked an all-time, first-quarter low. Using our strong cash position, we repurchased an additional one million shares of our stock for $47.0 million during the quarter."

Jon Jaffe, President of Lennar, said, "During the first quarter, we continued our strategic production focus, controlling direct construction costs, while enhancing our 'Builder of Choice' status with our trades. These important relationships with our subcontractors will be particularly relevant as we ramp up production during the year and remain on target to meet our 2019 synergy goals."

Mr. Miller concluded, "As we move into the heart of the spring selling season, we are optimistic that we will see a continued improvement in the demand for new homes. With a solid balance sheet, strong cash flow generation and continued execution of our core operating strategies, we believe that we are well positioned to produce strong results throughout 2019."

 RESULTS OF OPERATIONS

THREE MONTHS ENDED FEBRUARY 28, 2019 COMPARED TO
THREE MONTHS ENDED FEBRUARY 28, 2018

On February 12, 2018, Lennar Corporation completed its acquisition of CalAtlantic Group, Inc. ("CalAtlantic"). Prior year information includes CalAtlantic only after the acquisition date.

Homebuilding

Revenues from home sales increased 36% in the first quarter of 2019 to $3.6 billion from $2.6 billion in the first quarter of 2018. Revenues were higher primarily due to a 31% increase in the number of home deliveries, excluding unconsolidated entities, and a 4% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 8,802 homes in the first quarter of 2019 from 6,734 homes in the first quarter of 2018, primarily as a result of the significant increase in volume resulting from the CalAtlantic acquisition. The average sales price of homes delivered was $410,000 in the first quarter of 2019, compared to $393,000 in the first quarter of 2018. The increase in average sales price primarily resulted from the CalAtlantic acquisition. Sales incentives offered to homebuyers were $25,300 per home delivered in the first quarter of 2019, or 5.8% as a percentage of home sales revenue, compared to $22,300 per home delivered in the first quarter of 2018, or 5.4% as a percentage of home sales revenue, and $25,000 per home delivered in the fourth quarter of 2018, or 5.6% as a percentage of home sales revenue.

Gross margins on home sales were $726.1 million, or 20.1%, in the first quarter of 2019, compared to $516.6 million, or 19.5%, in the first quarter of 2018. The gross margin percentage on home sales increased primarily because the first quarter of 2018 included $55.0 million or 210 basis points of backlog/construction in progress write-up related to purchase accounting adjustments on CalAtlantic homes that were delivered in that quarter. There was also an increase in average sales price in the first quarter of 2019, offset by higher construction costs and increased sales incentives.

Selling, general and administrative expenses were $343.3 million in the first quarter of 2019, compared to $257.2 million in the first quarter of 2018. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.5% in the first quarter of 2019, from 9.7% in the first quarter of 2018, due to improved operating leverage as a result of an increase in home deliveries and continued benefit from technology initiatives.

Other homebuilding revenue, gross margin on land sales, homebuilding equity in loss from unconsolidated entities and homebuilding other income (expense), net, totaled a net loss of $13.2 million in the first quarter of 2019, compared to net income of $154.5 million in the first quarter of 2018. Homebuilding equity in loss from unconsolidated entities was $13.8 million in the first quarter of 2019, compared to $14.1 million in the first quarter of 2018. In the first quarter of 2019, Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of net operating losses from its unconsolidated entities. In the first quarter of 2018, Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of valuation adjustments related to assets of Homebuilding's unconsolidated entities and the Company's share of net operating losses from its unconsolidated entities. Homebuilding other income (expense), net, was ($1.5) million in the first quarter of 2019, compared to $170.0 million in the first quarter of 2018. Homebuilding other income, net, in the first quarter of 2018 was primarily related to a gain on the sale of an 80% interest in one of Homebuilding's strategic joint ventures, Treasure Island Holdings.

Homebuilding interest expense was $64.6 million in the first quarter of 2019 ($61.3 million was included in costs of homes sold, $0.3 million in costs of land sold and $3.0 million in homebuilding other expense, net), compared to $51.2 million in the first quarter of 2018 ($48.3 million was included in costs of homes sold, $0.4 million in costs of land sold and $2.4 million in homebuilding other income, net). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Financial Services

Operating earnings for the Financial Services segment were $21.8 million in the first quarter of 2019 (which included $19.0 million of operating earnings and an add back of $2.8 million of net loss attributable to noncontrolling interests). Operating earnings in the first quarter of 2018 were $25.9 million. Operating earnings were impacted by the sale of non-core businesses in the first quarter of 2019 and a decrease in Rialto Mortgage Finance securitization revenues as a result of lower volume and margins.

During the first quarter of 2019, the Company sold the majority of its retail title agency business and its wholly owned title insurance carrier. In addition, the Company sold its real estate brokerage business, which operated only in Florida, and its retail mortgage business.

Multifamily

Operating earnings for the Multifamily segment were $6.8 million in the first quarter of 2019, primarily due to the segment's $3.6 million share of a gain as a result of the sale of one operating property by Multifamily's unconsolidated entities and $11.9 million gain on the sale of an investment in an operating property, partially offset by general and administrative expenses. In the first quarter of 2018, the Multifamily segment had an operating loss of $1.2 million primarily due to general and administrative expenses partially offset by the segment's $4.1 million share of a gain as a result of the sale of one operating property by one of Multifamily's unconsolidated entities and management fee income.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $79.3 million, or 2.1% as a percentage of total revenues, in the first quarter of 2019, compared to $67.8 million, or 2.3% as a percentage of total revenues, in the first quarter of 2018. The decrease in corporate general and administrative expenses as a percentage of total revenues was due to improved operating leverage as a result of an increase in home deliveries.

OTHER TRANSACTIONS

Share Repurchases

During the first quarter of 2019, the Company's Board of Directors authorized the Company to repurchase up to the lesser of $1 billion in value, or 25 million in shares, of the Company's outstanding Class A or Class B common stock. The repurchase authorization has no expiration. Under this repurchase program, the Company repurchased one million shares of its Class A common stock for $47.0 million at an average per share price of $46.98.

About Lennar

Lennar Corporation, founded in 1954, is one of the nation's leading builders of quality homes for all generations. The Company builds affordable, move-up and active adult homes primarily under the Lennar brand name. Lennar's Financial Services segment provides mortgage financing, title and closing services primarily for buyers of Lennar's homes and, through Rialto Mortgage Finance, originates mortgage loans secured primarily by commercial real estate properties throughout the United States. Lennar's Multifamily segment is a nationwide developer of high-quality multifamily rental properties. Lennar Ventures drives the Company's technology and innovation strategies. For more information about Lennar, please visit www.lennar.com.

Note Regarding Forward-Looking Statements: Some of the statements in this press release are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, including statements regarding our 2019 synergy goals related to the CalAtlantic integration, our expected home deliveries in fiscal 2019, our belief regarding the homebuilding market and other markets in which we participate, and our belief regarding how we are positioned to take advantage of opportunities, or to avoid problems, in those markets and to advance the future growth of our businesses. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Accordingly, these forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those anticipated by the forward-looking statements. Important factors that could cause such differences include an extended slowdown in the real estate markets across the nation, or in regions where we have significant homebuilding or multifamily development activities; increases in operating costs, including costs related to real estate taxes, construction materials, labor and insurance, and our ability to manage our cost structure, both in our Homebuilding and Multifamily businesses; reduced availability of mortgage financing or increased interest rates; decreased demand for our homes or Multifamily rental properties, or our inability to successfully sell our apartment developments; our inability to continue to realize the anticipated synergy benefits from the CalAtlantic integration; natural disasters or catastrophic events for which our insurance may not provide adequate coverage; our ability to successfully execute our strategies; a decline in the value of the land and home inventories we maintain and resulting possible future write-downs of the carrying value of our real estate assets; the possibility that the Tax Cuts and Jobs Act will have more negative than positive impact on us; unfavorable losses in legal proceedings; conditions in the capital, credit and financial markets; changes in laws, regulations or the regulatory environment affecting our business, and the risks described in our filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended November 30, 2018. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

A conference call to discuss the Company's first quarter earnings will be held at 11:00 a.m. Eastern Time on Wednesday, March 27, 2019. The call will be broadcast live on the Internet and can be accessed through the Company's website at www.lennar.com. If you are unable to participate in the conference call, the call will be archived at www.lennar.com for 90 days. A replay of the conference call will also be available later that day by calling 203-369-1372 and entering 657103 as the confirmation number.

 

LENNAR CORPORATION AND SUBSIDIARIES

Selected Revenues and Operating Information

(In thousands, except per share amounts)

(unaudited)




Three Months Ended


February 28,


2019


2018

Revenues:




Homebuilding

$

3,623,721



2,662,093


Financial Services

143,311



196,087


Multifamily

97,394



93,256


Other

3,656



29,355


Total revenues

$

3,868,082



2,980,791






Homebuilding operating earnings

$

369,595



413,927


Financial Services operating earnings

18,972



25,862


Multifamily operating earnings (loss)

6,797



(1,201)


Other operating earnings

3,103



2,845


Acquisition and integration costs related to CalAtlantic



(104,195)


Corporate general and administrative expenses

(79,343)



(67,810)


Earnings before income taxes

319,124



269,428


Provision for income taxes (1)

(79,700)



(132,611)


Net earnings (including net earnings (loss) attributable to noncontrolling interests)

239,424



136,817


Less: Net earnings (loss) attributable to noncontrolling interests

(486)



602


Net earnings attributable to Lennar

$

239,910



136,215






Average shares outstanding:




Basic

321,339



253,665


Diluted

321,349



254,448






Earnings per share:




Basic

$

0.74



0.53


Diluted

$

0.74



0.53






Supplemental information:




Interest incurred (2)

$

104,383



84,214






EBIT (3):




Net earnings attributable to Lennar

$

239,910



136,215


Provision for income taxes

79,700



132,611


Interest expense

64,601



51,224


EBIT

$

384,211



320,050




(1)

Provision for income taxes for the three months ended February 28, 2018 includes a one-time non-cash write-down of deferred tax assets of $68.6 million as a result of the Tax Cuts and Jobs Act enacted in December 2017.

(2)

Amount represents interest incurred related to homebuilding debt.

(3)

EBIT is a non-GAAP financial measure defined as earnings before interest and taxes. This financial measure has been presented because the Company finds it important and useful in evaluating its performance and believes that it helps readers of the Company's financial statements compare its operations with those of its competitors. Although management finds EBIT to be an important measure in conducting and evaluating the Company's operations, this measure has limitations as an analytical tool as it is not reflective of the actual profitability generated by the Company during the period. Management compensates for the limitations of using EBIT by using this non-GAAP measure only to supplement the Company's GAAP results. Due to the limitations discussed, EBIT should not be viewed in isolation, as it is not a substitute for GAAP measures.


 

 

LENNAR CORPORATION AND SUBSIDIARIES

Segment Information

(In thousands)

(unaudited)




Three Months Ended


February 28,


2019


2018

Homebuilding revenues:




Sales of homes

$

3,608,129



2,649,140


Sales of land

13,783



12,953


Other homebuilding revenue

1,809




Total revenues

3,623,721



2,662,093






Homebuilding costs and expenses:




Costs of homes sold

2,882,050



2,132,512


Costs of land sold

13,526



14,368


Selling, general and administrative

343,259



257,153


Total costs and expenses

3,238,835



2,404,033


Homebuilding operating margins

384,886



258,060


Homebuilding equity in loss from unconsolidated entities

(13,756)



(14,128)


Homebuilding other income (expenses), net

(1,535)



169,995


Homebuilding operating earnings

$

369,595



413,927






Financial Services revenues

$

143,311



196,087


Financial Services costs and expenses

124,339



170,225


Financial Services operating earnings

$

18,972



25,862






Multifamily revenues

$

97,394



93,256


Multifamily costs and expenses

101,178



97,199


Multifamily equity in earnings (loss) from unconsolidated entities and other gain

10,581



2,742


Multifamily operating earnings (loss)

$

6,797



(1,201)






Other revenues

$

3,656



29,355


Other costs and expenses

1,622



26,607


Other equity in earnings from unconsolidated entities

8,330



8,955


Other expense, net

(7,261)



(8,858)


Other operating earnings

$

3,103



2,845


 

LENNAR CORPORATION AND SUBSIDIARIES
Summary of Deliveries, New Orders and Backlog
(Dollars in thousands, except average sales price)
(unaudited)

In connection with the CalAtlantic acquisition in 2018, the Company reassessed how it evaluates the business and allocates resources. As a result, in the fourth quarter of 2018 the Company modified its homebuilding operating segments into four reportable segments: Homebuilding East, Homebuilding Central, Homebuilding Texas, and Homebuilding West. All prior periods have been adjusted to conform with the Company's current presentation.

Lennar's reportable homebuilding segments and all other homebuilding operations not required to be reported separately have divisions located in:

East: Florida, New Jersey, North and South Carolina
Central: Georgia, Illinois, Indiana, Maryland, Minnesota, Tennessee and Virginia
Texas: Texas
West: Arizona, California, Colorado, Nevada, Oregon, Utah and Washington
Other: Urban divisions and other homebuilding related investments, including FivePoint


For the Three Months Ended February 28,


2019


2018


2019


2018


2019


2018

Deliveries:

Homes


Dollar Value


Average Sales Price

East

3,612



2,757



$

1,226,435



909,585



$

340,000



330,000


Central

1,124



654



433,125



253,325



385,000



387,000


Texas

1,251



1,090



412,429



348,087



330,000



319,000


West

2,825



2,225



1,537,503



1,127,635



544,000



507,000


Other

8



39



7,758



33,101



970,000



849,000


Total

8,820



6,765



$

3,617,250



2,671,733



$

410,000



395,000


Of the total homes delivered listed above, 18 homes with a dollar value of $9.1 million and an average sales price of $507,000 represent home deliveries from unconsolidated entities for the three months ended February 28, 2019, compared to 31 home deliveries with a dollar value of $22.6 million and an average sales price of $729,000 for the three months ended February 28, 2018.

New Orders:

Homes


Dollar Value


Average Sales Price

East

4,493



3,563



$

1,521,431



1,152,418



$

339,000



323,000


Central

1,422



785



537,596



308,429



378,000



393,000


Texas

1,424



1,374



456,959



432,178



321,000



315,000


West

3,112



2,705



1,629,814



1,450,235



524,000



536,000


Other

12



29



11,313



25,741



943,000



888,000


Total

10,463



8,456



$

4,157,113



3,369,001



$

397,000



398,000


Of the total new orders listed above, 15 homes with a dollar value of $9.7 million and an average sales price of $647,000 represent new orders from unconsolidated entities for the three months ended February 28, 2019, compared to 26 new orders with a dollar value of $16.3 million and an average sales price of $628,000 for the three months ended February 28, 2018.


February 28,


2019


2018 (1)


2019


2018


2019


2018

Backlog:

Homes


Dollar Value


Average Sales Price

East

7,956



6,923



$

2,817,706



2,533,377



$

354,000



366,000


Central

2,284



2,188



894,724



865,628



392,000



396,000


Texas

2,321



2,576



805,250



961,976



347,000



373,000


West

4,688



5,860



2,579,762



3,290,340



550,000



561,000


Other

10



19



12,543



22,436



1,254,000



1,181,000


Total

17,259



17,566



$

7,109,985



7,673,757



$

412,000



437,000


Of the total homes in backlog listed above, 14 homes with a backlog dollar value of $7.7 million and an average sales price of $552,000 represent the backlog from unconsolidated entities at February 28, 2019, compared to 18 homes with a backlog dollar value of $8.9 million and an average sales price of $494,000 at February 28, 2018.

(1)

During the three months ended February 28, 2018, the Company acquired a total of 6,940 homes in backlog in connection with the CalAtlantic acquisition. Of the homes in backlog acquired, 2,305 homes were in the East, 1,342 homes were in the Central, 953 homes were in Texas and 2,340 homes were in the West.

 

 


LENNAR CORPORATION AND SUBSIDIARIES

Supplemental Data

(Dollars in thousands)

(unaudited)



February 28,


November 30,


February 28,


2019


2018


2018

Homebuilding debt

$

9,256,423



8,543,868



10,382,540


Stockholders' equity

14,786,814



14,581,535



13,060,930


Total capital

$

24,043,237



23,125,403



23,443,470


Homebuilding debt to total capital

38.5

%


36.9

%


44.3

%







Homebuilding debt

$

9,256,423



8,543,868



10,382,540


Less: Homebuilding cash and cash equivalents

852,551



1,337,807



733,905


Net homebuilding debt

$

8,403,872



7,206,061



9,648,635


Net homebuilding debt to total capital (1)

36.2

%


33.1

%


42.5

%



(1)

Net homebuilding debt to total capital is a non-GAAP financial measure defined as net homebuilding debt (homebuilding debt less homebuilding cash and cash equivalents) divided by total capital (net homebuilding debt plus stockholders' equity). The Company believes the ratio of net homebuilding debt to total capital is a relevant and a useful financial measure to investors in understanding the leverage employed in homebuilding operations. However, because net homebuilding debt to total capital is not calculated in accordance with GAAP, this financial measure should not be considered in isolation or as an alternative to financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement the Company's GAAP results.

 

Cision

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