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Will Low Average Selling Price Mar Lennar (LEN) Q4 Earnings?

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Lennar Corporation (LEN - Free Report) is slated to report results for fourth-quarter fiscal 2019 (ended Nov 30) before the opening bell on Jan 8.

In the last reported quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 20.5% and 6.1%, respectively. Notably, this Miami-based homebuilder surpassed earnings expectations in five of the trailing six quarters.

On a year-over-year basis, earnings and revenues grew 16.1% and 3%, respectively, given higher deliveries and continued operating leverage, backed by technological efforts.

Lennar Corporation Price and EPS Surprise


Lennar Corporation Price and EPS Surprise

Lennar Corporation price-eps-surprise | Lennar Corporation Quote

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been unchanged at $1.90 over the past 30 days. The estimated figure indicates a decrease of 3.1% from $1.96 per share reported in the year-ago quarter. Nonetheless, the consensus mark for revenues is pegged at $6.7 billion, suggesting a 3.7% increase from the year-ago reported figure of $6.46 billion.

Let’s see how things have shaped up for this announcement.

Factors to Note

Lennar’s fiscal third-quarter revenues are expected to have increased from the year-ago level, given lower mortgage rates and continued demand for affordable housing from multiple demographic groups. The company has been shifting the business mix to lower-priced homes. This is expected to have boosted its sales absorption pace. Overall, higher volume and robust backlog position are expected to have aided the company’s Homebuilding revenues (accounting for 93.4% of total revenues). The Zacks Consensus Estimate for the company’s Homebuilding revenues is pegged at $6.22 billion, which indicates an increase of 2.6% from $6.07 billion in the year-ago period and 14.4% from $5.44 billion in the last reported quarter.

Lennar expects deliveries for the to-be-reported quarter within 15,800-16,000 units, indicating an increase from 14,154 units reported a year ago and 13,522 units in the last reported quarter. Average sales price is expected between $385,000 and $390,000, indicating a decrease from $421,000 in the year-ago period and $394,000 in the last reported quarter. The consensus estimate for deliveries is currently pegged at 15,956 units, suggesting 12.7% year-over-year and 18% sequential jump.

The company expects new orders in the 12,200-12,400 range, suggesting an increase from 10,611 in fourth-quarter fiscal 2018 but a decrease from 13,369 units in the last reported quarter. The consensus estimate for backlog is currently pegged at 15,231 units, suggesting 2.5% year-over-year and 19.4% sequential decline.

From the margins perspective, lower average sales prices have been threatening Lennar’s margins. The company expects fiscal fourth-quarter gross margin in the range of 21.25-21.5% (pointing to growth from 20.4% in the fiscal second quarter and 21.4% in the year-ago period). The company’s focus on targeting more first-time homebuyers and lower-priced homes has been impacting margins. This is likely to have hampered its performance in the quarter to be reported. Higher incentives per home also added to the woes.

Nonetheless, Lennar has been focused on continued improvement in the SG&A (selling, general and administrative) line owing to operating leverage and investments in technology. SG&A expenses — as a percentage of home sales — are estimated within 7.7-7.8%, indicating an improvement from 7.9% a year ago and 8.3% in the fiscal third quarter.

What the Zacks Model Unveils

Lennar does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

Earnings ESP: Lennar has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Lennar carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks With Favorable Combination

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Continental Building Products, Inc. CBPX has an Earnings ESP of +2.92% and a Zacks Rank #3.

Jacobs Engineering Group Inc. J has an Earnings ESP of +3.58% and holds a Zacks Rank #3.

Floor & Decor Holdings, Inc. FND has an Earnings ESP of +7.48% and a Zacks Rank #3.

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