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Lennar (LEN) Shares Rise on Q2 Earnings & Revenue Beat

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Lennar Corporation’s (LEN - Free Report) shares rose 3.4% on Jun 21, following its second-quarter fiscal 2022 (ended May 31, 2022) earnings release. Quarterly earnings and revenues topped the Zacks Consensus Estimate, despite unprecedented supply-chain challenges.

Pertaining to the quarterly release, Jon Jaffe, the Co-Chief Executive Officer and Co-President of Lennar said, “During the quarter, our homebuilding machine continued to be intensely focused on production. Our cycle time during the quarter increased only slightly sequentially so it appears that the well documented supply chain issues have started to subside. Our quarterly starts and sales pace remained strong at 6.2 homes and 5.0 homes per community, respectively, in the second quarter."

Quarterly Numbers

LEN reported adjusted quarterly earnings (excluding mark-to-market gains and losses in both years) of $4.69 per share, surpassing the Zacks Consensus Estimate of $3.95. This marked the 13th consecutive quarter of an earnings beat. Reported earnings also increased 59% 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 $8.36 billion topped the consensus mark of $8.13 billion. The reported figure grew 30% year over year.

Lennar Corporation Price, Consensus and EPS Surprise

Lennar Corporation Price, Consensus and EPS Surprise

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

Segment Details

Homebuilding: Revenues of the segment totaled $7.98 billion, up 32.3% from the prior-year quarter. Within the Homebuilding umbrella, home sales contributed $7.96 billion to total revenues, up 33.2% from a year ago. Land sales accounted for $7.5 million, down from $38.8 million in the prior-year quarter. The Other homebuilding unit contributed $6.78 million to homebuilding revenues, down from $8.53 million a year ago.

Home deliveries for the reported quarter improved 14% from the year-ago level to 16,549 units. The average sales price of homes delivered was $483,000, up 17% from the year-ago figure.

New orders grew 4% from the year-ago quarter to 17,792 homes. The potential value of net orders also increased 20% year over year to $9.1 billion.

Backlog at fiscal second-quarter end climbed 16% from a year ago to 28,624. Potential housing revenues from backlog also advanced 33% year over year to $14.7 billion.

Homebuilding Margins

Gross margin on home sales was 29.5% for the quarter, up 340 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 150 bps to 6.1% on improved operating leverage, given the benefits from a decrease in broker commissions and the company's technology efforts. This marks the lowest percentage for the second quarter in Lennar’s history.

Homebuilding operating earnings of $1.88 billion for the quarter increased from the year-ago level of $1.11 billion.

Financial Services: The segment’s revenues decreased 8.5% year over year to $200.2 million for the reported quarter. Operating earnings for the quarter also declined to $103.9 million from $121.3 million a year ago, owing to lower mortgage net margins, given stiff competition.

Lennar Multi-Family: Revenues of $176 million at the segment were slightly down from $177.5 million in the prior-year quarter. The segment registered operating earnings of $0.7 million for the quarter compared with $22.4 million a year ago.

Lennar Other: The segment’s revenues totaled $4.5 million, down from $6 million a year ago. The segment’s operating loss was $108.4 million for the quarter compared with $54.1 million in the comparable period of 2021.

Financials

Lennar had homebuilding cash and cash equivalents of $1.3 billion as of May 31, 2022, down from $2.7 billion on Nov 30, 2021. Total homebuilding debt was $4.64 billion as of May 31, 2022, almost in line with fiscal 2021 end. Homebuilding debt to capital at fiscal second-quarter end was 17.7%, down from 18.3% at fiscal 2021 end.

LEN has no outstanding borrowings under the $2.575 billion revolving credit facility, thereby providing $3.9 billion of available capacity.

Lennar repurchased 4.1 million shares for $320.6 million. This resulted in a return on equity of 21.4%, up 260 bps year over year.

Guidance

For fiscal 2022, Lennar expects deliveries of 68,000 homes. The company, however, refrained from providing guidance for other metrics, given the Fed’s actions that Lennar believes “are still quite fluid and responsive to inflation data.”

Stuart Miller, the executive chairman of Lennar, added that “the housing market will rebalance supply and demand, and interest rates and purchase price as market conditions evolve.”

For the fiscal third quarter, it expects deliveries within 17,000-18,500 homes, with a gross margin on home sales of 28.5-29.5%. New orders are likely to be between 16,000 and 18,000 units, and ASP is expected to be slightly higher than fiscal second quarter level. SG&A expenses, as a percentage of home sales, are likely to be 6-6.5% for the quarter.

Zacks Rank

Lennar currently carries a Zacks Rank #5 (Strong Sell).

Some Better-Ranked Stocks From the Same Industry

Meritage Homes Corporation (MTH - Free Report) is one of the leading designers and builders of single-family homes. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Meritage Homes has declined 46.1% year to date. That said, earnings are expected to grow 42.7% in 2022. Earnings estimates have moved 1.4% north for 2022 over the past 30 days.

NVR, Inc. (NVR - Free Report) currently holds a Zacks Rank #1. The company is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis.

NVR shares have declined 37.4% over a year. However, earnings are expected to grow 68.4% in 2022. Earnings estimates have increased 20.4% for 2022 over the past 30 days.

M/I Homes, Inc. (MHO - Free Report) currently carries a Zacks Rank #2 (Buy). This is one of the nation's leading builders of single-family homes.

M/I Homes has lost 42.3% year to date. Earnings for 2022 are expected to grow 21.3%. Earnings estimates have increased 5.6% for 2022 over the past 30 days.


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