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Lennar (LEN) Stock Up on Q3 Earnings Beat, Revenues In Line

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Lennar Corporation’s (LEN - Free Report) shares gained 5.5% in the pre-market trading session, following the release of third-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate.

The company’s third-quarter adjusted earnings of $1.40 per share topped the consensus mark of $1.19 by 21 cents. The reported figure mainly excludes acquisition and integration costs related to CalAtlantic Group, Inc.

Including these items as well as backlog/construction in progress write-up related to purchase accounting, the reported figure came in at $1.37 per share in the quarter, increasing considerably from the year-ago profit level of $1.04 per share.

The improvement was primarily attributable to greater demand, courtesy of strong housing market fundamentals, given low unemployment, higher wages and lower inventory levels.

Total revenues of $5.67 billion were on par with the consensus mark but increased 74% year over year as the Homebuilding and Financial Services performed significantly well.

Segment Details

Homebuilding: The segment’s revenues increased 83% from the prior-year quarter to $5.28 billion, driven by higher number of homes delivered and greater average selling prices. Within the Homebuilding umbrella, home sales constituted $5.22 billion (up 83.2% year over year) and land sales amounted to $62 million (up from $37.5 million a year ago).

New home orders increased 62% from the year-ago quarter to 12,319. Potential value of net orders increased 73% year over year to $5.1 billion.

Home deliveries increased 66% from the prior-year quarter to 12,613, buoyed by higher number of homes delivered across all homebuilding segments, courtesy of significant increase in volume resulting from the CalAtlantic acquisition.

The average sales price (ASP) of homes delivered was $415,000, reflecting an increase of 10% year over year.
 
In the quarter under review, backlog grew 88% from the year-ago quarter to 19,220 homes. Potential housing revenues from backlog increased 105% year over year to $8.4 billion.

Lennar Corporation Price, Consensus and EPS Surprise

 

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

Margins

Gross margin on home sales was 20.3% in the quarter compared with 22.8% a year ago. Excluding the above-mentioned backlog/construction in progress write-up, gross margin on home sales was 21.9%. The decline was due to higher construction and land costs that were partially offset by an increase in the average sales price of homes delivered.

As a percentage of home sales, SG&A (selling, general and administrative) expenses improved 60 bps to 8.6% from 9.2% 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 9.9% to $236.3 million in the quarter. Operating earnings at the segment were $56.6 million, up from $49.1 million a year ago.

Rialto Investments: Rialto Investments’ revenues of $49.5 million decreased from $57.8 million a year ago. The segment reported operating earnings of $9.4 million in the quarter against a loss of $3.2 million in the year-ago quarter.

Lennar Multi-Family: Lennar Multi-Family revenues of $101.1 million decreased from $103.4 million recorded in the prior-year quarter. The segment incurred operating loss of $3.9 million in the quarter versus earnings of $9.1 million a year ago.

Financials

Lennar Homebuilding’s cash and cash equivalents totaled $833.3 million as of Aug 31, 2018, down from $2.3 billion on Nov 30, 2017. Net homebuilding debt of the company was $8.6 billion as of Aug 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 Century Communities, Inc. (CCS - Free Report) , M.D.C. Holdings, Inc. (MDC - Free Report) and Toll Brothers, Inc. (TOL - Free Report) . While Century Communities sports a Zacks Rank #1 (Strong Buy), M.D.C. Holdings and Toll Brothers both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings for Century Communities, M.D.C. Holdings and Toll Brothers are expected to grow 27.2%, 46.9% and 44.2%, respectively, for the current year.

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