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Why Is Lennar (LEN) Down 1.6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Lennar (LEN). Shares have lost about 1.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lennar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Lennar’s (LEN) Q2 Earnings & Revenues Beat Estimates

Lennar Corporation 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 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.

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.


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.

Fiscal 2019 Guidance

The company expects deliveries within 50,500-51,000 units. Average sales price or ASP is expected to be $400,000. Lennar expects gross margin in the range of 20.5-21%. SG&A expenses for the year are estimated within 8.3-8.4%. The company expects Financial Services to generate earnings within $200-$205 million. Multifamily is expected to generate about $8-$10 million of profits during the year. The company remains on track to meet its prior guidance of $380 million for merger synergies. It expects corporate G&A in the range of 1.5-1.6% of total revenues.

Q3 Guidance

New orders are expected between 12,500 and 12,800; deliveries within 13,000-13,250 homes; ASP between $385,000 and $390,000; gross margin in the range of 20.25-20.5%; and SG&A in the band of 8.3-8.4%. The company expects earnings between $1.25 and $1.35 per share for the quarter. The company expects Multifamily to earn $5 million. Meanwhile, Financial Services earnings are expected between $52 million and $55 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.29% due to these changes.

VGM Scores

At this time, Lennar has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lennar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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