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Lennar (LEN) Q4 Earnings Beat on Homebuilding Strength

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Lennar Corporation (LEN - Free Report) beat expectations for both the counts for the fourth time in a row in fiscal 2016.

Lennar’s fourth-quarter fiscal 2016 adjusted earnings of $1.34 per share surpassed the Zacks Consensus Estimate of $1.27 by 5.5%. Earnings advanced 10.7% from the year-ago level of $1.21 a share driven by solid performance in its homebuilding business.
 
Total revenue of $3.376 billion beat the Zacks Consensus Estimate of $3.323 billion by 1.6%. Revenues also grew 14.6% year over year as homebuilding, financial services, Rialto and multi-family segments performed significantly well.

Segment Details

Homebuilding Revenues: Segment revenues increased 12.3% year over year to $3 billion. Within this, home sales constituted $2.93 billion (up 11% year over year) and land sales accounted for $76.1 million (up 117.7%), driven by higher number of homes delivered and an increase in average sales price of homes delivered.

New home orders increased 9% year over year to 6,598 in the fourth quarter of fiscal 2016. The potential value of net orders increased 12% year over year to $2.4 billion.

Home deliveries were up 7.5% year over year to 8,228 driven by higher number of homes delivered across all homebuilding segments as well as Homebuilding Central division, which now includes Homebuilding Houston.

The average selling price (ASP) of homes delivered was $358,000, up 2.6% year over year.

As of Nov 30, 2016, backlog grew 15% year over year to 7,623 homes. Potential housing revenues from backlog rose 17% year over year to $2.9 billion.

The company increased sales incentives during the quarter. Lennar’s sales incentives comprised 6.2% of home sales revenues in the fourth quarter, up 30 basis points (bps) year over year.

Margins

Gross margin on home sales declined 130 bps to 23.3% owing to rising land costs, partially offset by higher average sales price of homes delivered.
 
As a percentage of sales, SG&A expenses contracted 50 bps to 8.7% driven by improved operating leverage from increased number of homes delivered and benefits from increased focus on digital marketing.

Financial Services: Financial Services revenues increased 24.7% to $195.9 million in the quarter. Operating earnings at the segment were $51.4 million, up 52.1% due to increased profit per transaction in mortgage and title operations.

Rialto Investments: Rialto Investments’ revenues of $81.5 million increased 33.1% year over year due to an increase in Rialto Mortgage Finance securitization revenues on higher pricing.

The segment reported operating earnings of $8 million in the quarter compared with $7.6 million a year ago.
 
Lennar Multi-Family: Lennar Multi-Family revenues of $92.2 million increased 84% in the reported quarter from $50.1 million in the prior-year quarter.

The segment’s operating income was $41.4 million in the fourth quarter versus $10.2 million in the year-ago quarter. The improvement was driven by the sale of a property.

Fiscal 2016 Highlights

Fiscal 2016 earnings per share were $3.93, an increase of 13.6% year over year. Total revenue was $10.9 billion, up 15.6% year over year. Homebuilding revenue improved 15.1% year over year.

Deliveries and new orders were both up 9%.

Financials

Lennar Homebuilding’s cash and cash equivalents totaled $1.1 billion as of Nov 30, 2016, up from $893.4 million as of Nov 30, 2015. Net Lennar Homebuilding debt was $3.52 billion as of Nov 30, 2016, compared with $4.13 billion as of Nov 30, 2015.

LENNAR CORP -A Price, Consensus and EPS Surprise

 

LENNAR CORP -A Price, Consensus and EPS Surprise | LENNAR CORP -A Quote

Peer Release

Toll Brothers, Inc. TOL reported adjusted earnings of 67 cents per share in the fourth quarter of fiscal 2016, missing the Zacks Consensus Estimate of 98 cents by 31.6%.

Zacks Rank & Key Picks

Lennar currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the construction sector include Beazer Homes USA, Inc. BZH and Hovnanian Enterprises, Inc. HOV, both with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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