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Lennar (LEN) Q4 Earnings and Revenues Beat, Shares Rise

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Lennar Corporation’s LEN shares gained 3.2% after the company reported better-than-expected results in fourth-quarter fiscal 2019 (ended Nov 30, 2019). This marks the third consecutive quarter of earnings beat. The results mainly benefited from solid demand for new homes, depicting healthy housing market fundamentals stemming from low unemployment, higher wages and a decline in inventory levels.

The company reported quarterly earnings of $2.13 per share, surpassing the Zacks Consensus Estimate of $1.90 by 12.1%. Also, the reported figure jumped 15.8% from $1.84 reported in the year-ago quarter (excluding one-time gain of 58 cents per share from the sale of Rialto and non-recurring expenses). The upside was mainly driven by higher deliveries and continued operating leverage, backed by technological efforts.

Revenues of $6.97 billion topped the consensus estimate of $6.7 billion by 4.9%. The reported figure also increased 7.9% year over year.

Lennar Corporation Price, Consensus and EPS Surprise


Lennar Corporation Price, Consensus and EPS Surprise

Lennar Corporation price-consensus-eps-surprise-chart | Lennar Corporation Quote

Segment Details

Homebuilding: Revenues from the segment totaled $6.53 billion, up 7.7% from the prior-year period. The increase was backed by higher number of homes delivered during the quarter.

Within the Homebuilding umbrella, home sales contributed $6.44 billion to total revenues, up 8.3% from a year ago, and land sales accounted for $89.7 million, down 21.4% from the year-ago figure.

Home deliveries during the reported quarter increased 16% year over year to 16,420, buoyed by higher number of homes delivered across all the regions served by the company.

The average sales price of homes delivered was $393,000, reflecting a 7% year-over-year decline. The decline in selling price was owing to continued shift to the entry-level market.

New orders grew 23.4% from the year-ago quarter to 13,089 homes. Potential value of net orders also increased 22.6% year over year to $5.16 billion.

Backlog at the end of fiscal 2019 marginally decreased 0.2% from a year ago to 15,577. Potential housing revenues from backlog also declined 4.1% year over year to $6.3 billion.

Homebuilding Margins

Gross margin on home sales was 21.5% in the quarter, up 10 basis points (bps). The upside was attributable to backlog/construction in progress write-up related to purchase accounting adjustments on CalAtlantic Group, Inc. homes that were delivered during the comparable period of last year.

Selling, general and administrative or SG&A expenses, as a percentage of home sales, improved 30 bps to 7.6%. The improvement was due to better operating leverage, owing to increased home deliveries.

Operating margin on home sales also improved 40 bps year over year to 13.9% in the quarter.

Financial Services: The segment’s revenues increased almost 1% year over year to $252.8 million in the reported quarter. However, operating earnings came in at $81.2 million, up from $57.6 million a year ago. The upside was primarily backed by a strong mortgage business.

Lennar Multi-Family: Revenues of $175.9 million from the segment increased 61.2% from the prior-year quarter. However, the segment generated operating earnings of $4.8 million in the quarter, down from $33 million in the comparable year-ago period.

Lennar Other: The segment’s revenues totaled $7.9 million, down 76.5% from $33.7 million a year ago. Operating earnings were $10.8 million during the quarter against loss of $49.2 million in the comparable period of 2018.

Fiscal 2019 Highlights

Earnings came in at $5.74 per share, reflecting an increase of 5.5% from $5.44 a year ago. Revenues of $22.3 billion were up 8% year over year on the back of 13% increase in home deliveries. In fiscal 2019, the company’s new orders jumped 12% from a year ago to 51,439 homes.


Lennar had homebuilding cash and cash equivalents of $1.2 billion as of Nov 30, 2019, down from $1.34 billion on Nov 30, 2018. Net homebuilding debt was $6.58 billion as of Nov 30, 2019 compared with $7.21 billion on Nov 30, 2018. Net debt-to-capital ratio at the end of fiscal 2019 was 29.2% compared with 33.1% at fiscal 2018-end.

During the fiscal fourth quarter, the company repurchased 1.7 million shares of common stock for $98.2 million.

Fiscal 2020 Guidance

Lennar expects deliveries in the range of 54,000-55,000 homes and homebuilding gross margin in the range of 20.5%-21%.

Zacks Rank & Stocks to Consider

Currently, Lennar carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader construction sector are TopBuild Corp. BLD, D.R. Horton, Inc. (DHI - Free Report) and M.D.C. Holdings, Inc. MDC, While TopBuild sports a Zacks Rank #1 (Strong Buy), D.R. Horton and M.D.C. Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TopBuild, D.R. Horton and M.D.C. Holdings have a three-five year EPS growth rate of 28%, 11.8% and 10.3%, respectively.

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