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Why Is Lennar (LEN) Up 4.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Lennar (LEN - Free Report) . Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lennar due for a pullback? 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 drivers.

Lennar Q1 Earnings Beat, Revenues Miss, Orders Up

Lennar Corporation reported first-quarter fiscal 2024 results, wherein its earnings surpassed the Zacks Consensus Estimate but revenues missed the same. On a year-over-year basis, both the top and bottom lines increased, given the company’s emphasis on maintaining a steady production rate to drive sales momentum. Lennar strategically utilized pricing, incentives, marketing expenditure and dynamic pricing insights to ensure steady sales volume despite fluctuations in interest rates.

The company posted lower-than-expected revenues in the quarter and provided flat gross margin expectations and higher SG&A guidance for the second quarter of fiscal 2024.

Quarterly Numbers

LEN reported quarterly earnings per share (EPS) of $2.57, which surpassed the Zacks Consensus Estimate of $2.21 by 16.3%. The metric increased 25% year over year. Revenues of $7.31 billion missed the consensus mark of $7.44 billion by 1.8% but rose 12.7% year over year from $6.49 billion.

Segment Details

Homebuilding: Revenues of the segment totaled $6.93 billion, up 12.6% from the prior-year quarter. Under the Homebuilding umbrella, home sales contributed $6.9 billion to total revenues, up 13.3% from a year ago. Land sales accounted for $20.8 million, up from $9.7 million in the prior-year quarter. The Other homebuilding unit contributed $8.5 million to homebuilding revenues, down from $52.8 million a year ago.

Home deliveries for the reported quarter improved 23% from the year-ago level to 16,798 units. The ASP of homes delivered was $413,000, down 8% from the year-ago figure due to pricing to market through an increased use of incentives and product mix.

New orders rose 28% from the year-ago quarter to 18,176 homes. The potential value of net orders also increased 21% year over year to $7.7 billion. Backlog at the fiscal first-quarter end declined 16.1% from a year ago to 16,270 homes. Potential housing revenues from backlog decreased 17.7% year over year to $7.4 billion.

The gross margin on home sales was 21.8% for the quarter, up 60 bps year over year. The upside was due to reduced costs per square foot, reflecting the company's ongoing commitment to achieving construction cost efficiencies. However, this increase was somewhat mitigated by a decline in the ASP and a rise in land costs. SG&A expenses — as a percentage of home sales — rose 80 bps to 8.2% due to an increase in the use of brokers resulting from current market conditions and an uptick in digital marketing and advertising costs to generate more direct sales.

Financial Services: The segment’s revenues increased year over year to $249.7 million from $183 million for the reported quarter. Operating earnings for the quarter increased to $131.3 million from $78.7 million a year ago.

Lennar Multi-Family: Revenues of $129.7 million in the segment were down from $143.5 million in the prior-year quarter. The segment registered an operating loss of $15.6 million for the quarter, narrower than the year-ago loss of $21.6 million.

Lennar Other: The segment’s revenues totaled $2.5 million, down from $7.6 million a year ago. Its operating loss was $39.5 million for the quarter compared with $39.8 million in the comparable period of fiscal 2023.

Financials

At the fiscal first-quarter end, Lennar had homebuilding cash and cash equivalents of $5 billion, down from $6.27 billion at the end of fiscal 2023. LEN has no outstanding borrowings under the $2.6 billion revolving credit facility, thereby providing $7.6 billion of liquidity.

The total homebuilding debt was $2.83 billion as of the fiscal first-quarter end, slightly up from $2.82 billion at the fiscal 2023-end. Homebuilding debt to capital at the fiscal first-quarter end was 9.6%, remaining the same as the fiscal 2023-end. LEN repurchased 3.4 million shares for $506 million at an average share price of $148.95 in the fiscal first quarter.

Guidance

For second-quarter fiscal 2024, the company expects deliveries within 19,000-19,500 homes, depicting an increase from 17,074 homes delivered in the year-ago period. The company expects the ASP of the delivered units within $420,000-$425,000, down from an ASP of $449,000 reported a year ago.

The gross margin on home sales is expected to be 22.5%. SG&A expenses, as a percentage of home sales, are likely to be 7.2% for the quarter. In the prior year, gross margin was 22.5% and SG&A was 6.7%. New orders are likely to be within 20,900-21,300 units, up from 17,885 homes reported a year ago.

Financial Services operating earnings are expected to be in the range of $110-$115 million in the fiscal second quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Lennar has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been 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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