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Lennar's (LEN) Q1 Earnings & Revenues Miss Estimates, Up Y/Y

Zacks Equity Research

Lennar Corporation LEN reported first-quarter fiscal 2019 (ended Feb 28, 2019) results, wherein earnings and revenues missed the respective Zacks Consensus Estimate.

Nonetheless, the company believes that the housing market will remain stable in the near term, given declining mortgage rates and moderating home prices in recent times. Lennar stated that underlying housing market fundamentals of lower unemployment, higher wages and low inventory levels remain conducive to the industry. The stock gained almost 1% in the pre-market trading session, following its earnings release.

The company’s first-quarter earnings of 74 cents per share lagged the consensus mark of 75 cents by 1.3%. However, the reported figure increased 39.6% from the year-ago profit level of 53 cents.

Total revenues of $3.87 billion missed the consensus mark of $4.08 billion but increased 29.8% year over year, as the Homebuilding and Multifamily business segments performed well.

Lennar Corporation Price, Consensus and EPS Surprise

 

Lennar Corporation Price, Consensus and EPS Surprise | Lennar Corporation Quote

Segment Details

Homebuilding: The segment’s revenues increased 36.1% from the prior-year quarter to $3.62 billion, driven by higher number of homes delivered and greater average selling prices. Within the Homebuilding umbrella, home sales constituted $3.61 billion (up 36.2% year over year) and land sales accounted for $13.8 million (up 6.4%).

New home orders increased 23.7% from the year-ago quarter to 10,463. Potential value of net orders increased 23.4% year over year to $4.2 billion.

Home deliveries increased 31% from the prior-year quarter to 8,820, buoyed by higher number of homes delivered across all the regions served by the company, courtesy of a significant increase in volume as a consequence of the CalAtlantic acquisition.

The average sales price of homes delivered was $410,000, reflecting an 4.3% year-over-year increase.
 
In the quarter under review, backlog fell 1.7% from the year-ago quarter to 17,259 homes. Potential housing revenues from backlog decreased 7.3% year over year to $7.1 billion.

Margins

Gross margin on home sales was 20.1% in the quarter, up 60 basis points (bps) from 19.5% a year ago. The upside was attributable to an increase in the average sales price of homes delivered, partially offset by higher construction costs.

As a percentage of home sales, SG&A (selling, general and administrative) expenses improved 20 bps to 9.5%. The improvement was due to improved operating leverage, owing to higher home deliveries. Benefits from technology initiatives also added to the positives.

Financial Services: Financial Services revenues increased 26.9% year over year to $143.3 million in the quarter. Operating earnings at the segment were $21.8 million, down from $25.8 million a year ago. The decline was mainly due to the sale of non-core businesses in fiscal first-quarter 2019, and a decrease in Rialto Mortgage Finance securitization revenues as a result of lower volume and margins.

Lennar Multi-Family: Lennar Multi-Family revenues of $97.4 million increased 4.4% from the prior-year quarter. The segment generated operating earnings of $6.8 million in the quarter versus a loss of $1.2 million in the comparable year-ago period.

Financials

Lennar Homebuilding’s cash and cash equivalents totaled $852.6 million as of Feb 28, 2019, down from $1.34 billion on Nov 30, 2018. Net homebuilding debt of the company was $8.4 billion as of Nov 30, 2019 compared with $7.2 billion on Nov 30, 2018.

Zacks Rank

Currently, Lennar carries a Zacks Rank #3 (Hold).

Peer Release

KB Home’s KBH first-quarter fiscal 2019 earnings of 31 cents per share outpaced the Zacks Consensus Estimate of 27 cents by 14.8% but declined 22.5% from 40 cents a year ago. Total revenues of $811.5 million, however, missed the consensus mark of $829.3 million. The top line also declined 6.9% year over year, mainly due to lower average selling price (“ASP”) of homes delivered.

Stocks to Consider

Some better-ranked stocks in the Zacks Construction sector are Quanta Services, Inc. PWR and United Rentals, Inc. URI. While Quanta Services sports a Zacks Rank #1 (Strong Buy), United Rentals carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Quanta Services and United Rentals’ earnings per share are expected to grow 25.3% and 18.8%, respectively, in 2019.

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