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Lennar (LEN) Q2 Earnings Beat on CalAtlantic Synergies

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Lennar Corporation’s (LEN - Free Report) shares have gained 7.5% in pre-market trading, after surpassing earnings as well as revenue expectations in the second quarter of fiscal 2018 – the first full quarter with CalAtlantic.

The company’s second-quarter adjusted earnings of $1.58 per share surpassed the Zacks Consensus Estimate of 45 cents. The reported figure mainly excludes integration costs related to the acquisition of CalAtlantic Group, Inc. and backlog/construction in progress write-up related to purchase accounting. Including these items, the reported figure came in at 94 cents per share in the quarter, increasing considerably from the year-ago profit level of 89 cents per share.

The improvement was primarily attributable to greater demand for homes accompanied with higher prices.

Total revenues of $5.46 billion beat the Zacks Consensus Estimate of $5.23 billion. Revenues also increased 67% year over year as the Homebuilding, Financial Services and Multifamily segments performed significantly well.

Lennar Corporation Price, Consensus and EPS Surprise


Lennar Corporation Price, Consensus and EPS Surprise | Lennar Corporation Quote

Segment Details

Homebuilding: The segment’s revenues increased 75.5% from the prior-year quarter to $5.06 billion, driven by higher number of homes delivered and greater average selling prices. Within the Homebuilding umbrella, home sales constituted $5 billion (up 74% year over year) and land sales amounted to $78 million (up from $15.4 million a year ago).

New home orders increased 62% from the year-ago quarter to 14,440. Potential value of net orders increased 79% year over year to $6 billion.

Home deliveries increased 57% from the prior-year quarter to 12,095, buoyed by higher number of homes delivered across all homebuilding segments, courtesy of significant increase in volume resulting from the CalAtlantic acquisition.

The average selling price (ASP) of homes delivered was $413,000, reflecting an increase of 10.4% year over year.
In the quarter under review, backlog grew 92% from the year-ago quarter to 19,622 homes. Potential housing revenues from backlog increased 114% year over year to $8.6 billion.


Gross margin on home sales was 16.8% in the quarter. Excluding the above-mentioned backlog/construction in progress write-up, gross margin on home sales was 21.6% compared with 21.5% a year ago. The improvement was due to higher average sales price of homes delivered and increased volume.

As a percentage of home sales, SG&A (selling, general and administrative) expenses declined 60 bps to 8.7% from 9.3% a year ago. The improvement was due to improved operating leverage, owing to higher home deliveries. Benefits from technology initiatives also added to the positives.

Financial Services: Financial Services revenues increased 11.4% to $232.1 million in the quarter. Operating earnings at the segment were $52.4 million, up from $43.7 million a year ago.

Rialto Investments: Rialto Investments’ revenues of $45.2 million decreased from $68 million a year ago. The segment reported operating earnings of $6.9 million in the quarter against operating loss of $6.5 million in the year-ago quarter.

Lennar Multi-Family: Lennar Multi-Family revenues of $117.7 million increased from $99.8 million in the prior-year quarter. The segment generated operating earnings of $14.8 million in the quarter versus $6.5 million a year ago.


Lennar Homebuilding’s cash and cash equivalents totaled $931.8 million as of May 31, 2018, down from $2.3 billion as of Nov 30, 2017. Net Lennar Homebuilding debt was $9.1 billion as of May 31, 2018 compared with $4.1 billion on Nov 30, 2017.

Zacks Rank & Key Picks

Currently, Lennar carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector are M.D.C. Holdings, Inc. (MDC - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Beazer Homes USA, Inc. (BZH - Free Report) and Meritage Homes Corporation (MTH - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year earnings for M.D.C. Holdings, Beazer Homes and Meritage Homes are expected to grow 33.3%, 6.5% and 42.5%, respectively.

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