Lennar (LEN) Q1 Earnings & Revenues Top on Strong Demand

Lennar Corporation LEN surpassed earnings as well as revenue expectations in the first quarter of fiscal 2018.

The company’s first-quarter adjusted earnings of $1.11 per share surpassed the Zacks Consensus Estimate of 92 cents by 20.7%. The reported figure mainly includes integration costs related to the acquisition of CalAtlantic Group, Inc. and one-time non-cash write down of deferred tax assets due to the reduction in the federal corporate income tax rate. Including these items, the reported figure came in at 53 cents per share in the quarter, increasing considerably from the year-ago profit level of 16 cents per share.

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

Total revenues of $2.98 billion beat the Zacks Consensus Estimate of $2.89 billion. Revenues also increased 28% year over year as the Homebuilding, Financial Services, Rialto and Multifamily segments performed significantly well.

CalAtlantic Acquisition

In February, Lennar completed its strategic acquisition of CalAtlantic. Its first-quarter results benefited from this integration, as well as a strong economy and an improving job market. The company remains enthusiastic about its current results as well as future expectations, owing to this takeover.

Stuart Miller, Chief Executive Officer of Lennar, said, "Our first quarter results begin to display the true power of this combination.  Although these results do not include 2 ½ months of CalAtlantic's operations, all company metrics have performed as expected or better and we have grown more confident in our ability to exceed our $100 million synergy target in 2018 and we are on track to meet our $365 million synergy target in 2019."

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 34% from the prior-year quarter to $2.66 billion, driven by higher number of homes delivered and higher average selling prices. Within the Homebuilding umbrella, home sales constituted $2.65 billion (up 33.5% year over year) and land sales accounted for $13 million (down 63%).

New home orders increased 30% from the year-ago quarter to 8,456 in the fiscal first quarter. The potential value of net orders increased 38% year over year to $3.4 billion.

Home deliveries increased 24% from the prior-year quarter to 6,765, buoyed by higher number of homes delivered across all homebuilding segments.

The average selling price (ASP) of homes delivered was $395,000, reflecting an increase of 7.9% year over year.
 
In the quarter under review, backlog grew 95% from the year-ago quarter to 17,566 homes. Potential housing revenues from backlog increased 118% year over year to $7.7 billion.

Margins

Adjusted gross margin on home sales expanded 50 basis points (bps) to 21.6%. This was due to an increase in the 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 9.7% from 10.3% a year ago. The improvement was due to improved operating leverage, owing to higher home deliveries.

Financial Services: Financial Services revenues increased 15.6% to $171.1 million in the quarter. Operating earnings at the segment were $19.7 million, down from $20.7 million a year ago.

Rialto Investments: Rialto Investments’ revenues of $54.3 million decreased from $82 million a year ago. The segment reported operating earnings of $9.2 million in the quarter against operating loss of $0.8 million in the year-ago quarter.

Lennar Multi-Family: Lennar Multi-Family revenues of $93.3 million increased from $88.7 million in the prior-year quarter.

The segment incurred operating loss of $1.2 million in the quarter. In the year-ago quarter, the segment registered earnings of $19.2 million.

Financials

Lennar Homebuilding’s cash and cash equivalents totaled $733.9 million as of Feb 28, 2018, down from $2.3 billion as of Nov 30, 2017. Net Lennar Homebuilding debt was $9.6 billion as of Feb 28, 2018 compared with $4.1 billion as of Nov 30, 2017.

Zacks Rank & Key Picks

Lennar carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Construction sector are Beazer Homes USA, Inc. BZH, KB Home KBH and D.R. Horton, Inc. DHI.

Beazer Homes, a Zacks Rank #1 (Strong Buy) stock, is expected to witness 112.5% growth in earnings this quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home, also a Zacks Rank #1 company, is expected to see an earnings growth of 45.4% this year.

D.R. Horton, a Zacks Rank #2 (Buy) stock, is expected to witness 30.7% increase in fiscal 2018 earnings.

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