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Lennar's (LEN) Shares Gain on Q2 Earnings & Revenue Beat

Zacks Equity Research

Lennar Corporation’s LEN reported better-than-expected results in second-quarter fiscal 2019 (ended May 31, 2019), after missing estimates in the preceding quarter. Earnings and revenues increased on a year-over-year basis during the reported quarter. The company’s shares were up more than 4% during the pre-market trading session, following the impressive results.

The company reported quarterly earnings of $1.30 per share, surpassing the consensus mark of $1.13 by 15%. Also, the reported figure jumped an impressive 38.3% from 94 cents reported in the year-ago quarter. The upside was mainly driven by first-quarter deliveries that were delayed due to weather-related woes and a recovering housing market.

Revenues of $5.56 billion topped the consensus estimate of $5.12 billion by 8.8%. The reported figure also increased 1.9% year over year. Moderate home prices and declining interest rates stimulated both affordability and demand, thereby enhancing the company’s top line during the quarter.

Lennar Corporation Price, Consensus and EPS Surprise

Lennar Corporation Price, Consensus and EPS Surprise

Segment Details

Homebuilding: Revenues from the segment totaled $5.2 billion, up 2.6% from the prior-year period. The year-over-year increase was backed by higher number of homes delivered during the quarter.

Within the Homebuilding umbrella, home sales contributed $5.18 billion to total revenues, up 3.8% from a year ago, and land sales accounted for $16.5 million, significantly down from the year-ago figure of $78 million. Other homebuilding revenues added $3 million to total Homebuilding revenues.

Home deliveries during the reported quarter increased 5.2% year over year to 12,729, buoyed by higher number of homes delivered in East and Texas segments.

The average sales price of homes delivered was $408,000, reflecting a 1.2% year-over-year decline. The reduction in selling price was owing to unfavorable product mix, as a larger percentage of deliveries, which came from the Texas segment, continued to shift to lower-priced communities.

New orders grew 0.5% from the year-ago quarter to 14,518 homes. Potential value of net orders, however, fell 3.9% year over year to $5.8 billion.

Backlog at the end of the fiscal second quarter decreased 2.9% to 19,061 from 19,622 reported a year ago. Potential housing revenues from backlog also declined 9.9% year over year to $7.7 billion.

Homebuilding Margins

Gross margin on home sales was 20.1% in the quarter, up 330 basis points (bps). The upside was attributable to the absence of purchase accounting adjustments on CalAtlantic Group, Inc. homes that were delivered during the comparable period of last year.

Selling, general and administrative or SG&A expenses, as a percentage of home sales, improved 30 bps to 8.4%. The improvement was due to improved operating leverage, owing to higher home deliveries.

Financial Services: Financial Services revenues decreased 18.2% year over year to $204.2 million in the reported quarter. However, operating earnings came in at $62.5 million, up 12% from $55.8 million a year ago. The upside was primarily backed by strong mortgage business and improvement of Rialto Mortgage Finance business as a result of higher securitization dollar volume.

Lennar Multi-Family: Lennar Multi-Family revenues of $147.4 million increased 25.3% from the prior-year quarter. However, the segment generated operating loss of $3.9 million in the quarter versus earnings of $14.8 million in the comparable year-ago period.

Other: Revenues in the segment totaled $15.7 million, down 43.4% year over year. Operating earnings were $2.2 million during the quarter compared with $4 million in the comparable period of 2018.

Financials

Lennar had homebuilding cash and cash equivalents of $800.7 million as of May 31, 2019, down from $1.34 billion on Nov 30, 2018. Net homebuilding debt was $8.59 billion as of May 31, 2019 compared with $7.21 billion on Nov 30, 2018. Net debt to capital ratio at the end of the reported quarter was 36.2% compared with 33.1% at fiscal 2018-end.

During the fiscal second quarter, the company repurchased 1 million shares of common stock for $51.8 million at an average price of $51.76 per share.

Zacks Rank & Stocks to Consider

Currently, Lennar carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Building Products - Home Builders industry are Taylor Morrison Home Corporation TMHC, Meritage Homes Corporation MTH and PulteGroup, Inc. PHM. While Taylor Morrison sports a Zacks Rank #1 (Strong Buy), Meritage Homes and PulteGroup carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Taylor Morrison’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average being 38.7%.

Meritage Homes’ earnings topped the consensus estimate in three of the trailing four quarters, with an average positive surprise of 11.5%.

PulteGroup’s bottom line beat the Zacks Consensus Estimate in the trailing four quarters, with the average being 13.5%.

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Click to get this free report Meritage Corporation (MTH) : Free Stock Analysis Report PulteGroup, Inc. (PHM) : Free Stock Analysis Report Lennar Corporation (LEN) : Free Stock Analysis Report Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research