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Lennar (LEN) Q1 Earnings, Revenues Beat on Solid Housing Market

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Lennar Corporation’s (LEN - Free Report) shares gained 1.7% in the after-hours trading session on Mar 16, following its first-quarter fiscal 2022 (ended Feb 28, 2022) earnings release. Quarterly earnings and revenues topped the Zacks Consensus Estimate despite unprecedented supply chain challenges.

Pertaining to the quarterly release, Stuart Miller, the executive chairman of Lennar, said, “Our core operating performance in the first quarter reflects the continued strength in the housing market across the country.”

Looking forward, Miller added, “The housing industry continues to exhibit strong demand, outweighing supply, and we are confident that we will continue to generate solid growth and enhance our current market position.”

For 2022, Lennar boosted its projection for both deliveries and gross margin.

Lennar Corporation Price, Consensus and EPS Surprise

Lennar Corporation Price, Consensus and EPS Surprise

Lennar Corporation price-consensus-eps-surprise-chart | Lennar Corporation Quote

Quarterly Numbers

LEN reported adjusted quarterly earnings (excluding mark-to-market gains and losses in both years) of $2.70 per share, surpassing the Zacks Consensus Estimate of $2.60. This marked the 12th consecutive quarter of an earnings beat. Reported earnings also increased 32.4% year over year, mainly benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage.

Revenues of $6.2 billion topped the consensus mark of $6.19 billion by 0.2%. The reported figure grew 16.5% year over year.

Segment Details

Homebuilding: Revenues at the segment totaled $5.75 billion, up 16.4% from the prior-year quarter. Within the Homebuilding umbrella, home sales contributed $5.72 billion to total revenues, up 17% from a year ago. Land sales accounted for $24 million, down from $47.6 million in the prior-year quarter. The Other homebuilding unit contributed $6.5 million to homebuilding revenues, up from $4.5 million a year ago.

Home deliveries for the reported quarter improved a modest 2% from the year-ago level to 12,538 units. The average sales price of homes delivered was $457,000, up 15% from the year-ago figure.

New orders grew 1% from the year-ago quarter to 15,747 homes. The potential value of net orders also increased 19% year over year to $7.8 billion.

Backlog at fiscal first quarter-end climbed 24% from a year ago to 27,335. Potential housing revenues from backlog also advanced 43% year over year to $13.6 billion.

Homebuilding Margins

Gross margin on home sales was 26.9% for the quarter, up 190 basis points (bps). The upside can be attributed to higher revenues per square foot, flat land costs, its efforts toward reducing construction costs and lower interest expense.

Selling, general and administrative or SG&A expenses — as a percentage of home sales — improved 90 bps to 7.5% on improved operating leverage, given benefits from a decrease in broker commissions and the company's technology efforts. This marks the lowest percentage for a first quarter in Lennar’s history.

Homebuilding operating earnings of $1.11 billion for the quarter increased from the year-ago level of $833.2 million.

Financial Services: The segment’s revenues decreased 27.6% year over year to $176.7 million for the reported quarter. Operating earnings for the quarter also declined to $90.8 million from $146.2 million a year ago owing to lower mortgage net margins, given stiff competition.

Lennar Multi-Family: Revenues of $267.4 million at the segment were up 103.4% from the prior-year quarter. The segment registered an operating earnings of $5.4 million for the quarter versus an operating loss of $0.9 million a year ago.

Lennar Other: The segment’s revenues totaled $7.3 million, up from $6.9 million a year ago. The segment’s operating loss was $403.1 million for the quarter versus operating income of $471.3 million in the comparable period of 2021.

Financials

Lennar had homebuilding cash and cash equivalents of $1.4 billion as of Feb 28, 2022, down from $2.7 billion on Nov 30, 2021. Total homebuilding debt was $4.64 billion as of Feb 28, 2022, down from $4.65 billion on Nov 30, 2021. Homebuilding debt to capital at fiscal first quarter-end was 18.3%, in line with fiscal 2021-end.

LEN has no outstanding borrowings under the $2.5-billion revolving credit facility, thereby providing $3.9 billion of available capacity.

Lennar repurchased 5.3 million shares for $526 million. This resulted in a return on equity of 19.5%, up 180 bps year over year.

Guidance

For fiscal 2022, Lennar now expects deliveries of 68,000 homes (versus 67,000 homes expected earlier) and homebuilding gross margin to be 27.25-28% (versus earlier expectation of 27-27.5%). ASP is projected within $470,000-$475,000 (versus $460,000 projected before). SG&A expenses, as a percentage of home sales, are likely to be 6.6-6.8%. Earlier, Lennar expected SG&A of 6.8-6.9% for the year.

For the fiscal second quarter, it expects deliveries within 16,000-16,300 homes, with a gross margin on home sales of 28-28.25%. New orders are likely to be between 17,800 and 18,200 units, and ASP is projected at $470,000. SG&A expenses, as a percentage of home sales, are likely to be 6.8-7% for the quarter.

Zacks Rank

Lennar currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some Better-Ranked Stocks From the Same Industry

D.R. Horton, Inc. (DHI - Free Report) currently sports a Zacks Rank #1. This homebuilder continues to gain from its industry-leading market share, solid acquisition strategy, a well-stocked supply of land, lots and homes along with affordable product offerings across multiple brands.

D.R. Horton has declined 1.1% over a year. That said, earnings are expected to grow 38.5% in fiscal 2022.

M.D.C. Holdings, Inc. (MDC - Free Report) currently holds a Zacks Rank #2 (Buy). The company’s build-to-order operating model and focus on more affordable homes have been a major driving factor.

M.D.C. Holdings shares have declined 24.8% over a year. Yet, earnings are expected to grow 35.5% in 2022.

TRI Pointe Group Inc. (TPH - Free Report) currently carries a Zacks Rank #2. This Irvine, CA-based homebuilder designs, constructs, and sells single-family detached and attached homes in the United States. Robust demand and pricing as well as improved operating leverage have been driving TRI Pointe's performance. Cost-cutting initiatives implemented earlier this year and focus on entry-level buyers have been adding to the positives.

TRI Pointe has gained 16% over a year. Earnings for 2022 are expected to grow 21.1%.