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Lennar (LEN) Q4 Earnings Miss, Revenues Top on Higher Demand

Zacks Equity Research
Updated

Lennar Corporation LEN missed expectations on earnings in the final quarter of fiscal 2017 after surpassing the same for seven times in a row.

The company’s fourth-quarter fiscal 2017 adjusted earnings of $1.29 per share fell shy of the Zacks Consensus Estimate of $1.50 by 14% and decreased 1.5% from the year-ago level of $1.31. The downside was primarily due to the strategic shift of a transaction to the first quarter of fiscal 2018.

Nonetheless, the company remains positive about the overall homebuilding market, solid demand for homes, favorable job market, and solid economy, along with the added tailwinds of recent tax law changes that will continue to propel the housing market forward.

Total revenues of $3.79 billion beat the Zacks Consensus Estimate of $3.62 billion by 4.5%. Revenues also increased 12% year over year, as the homebuilding, financial services and multi-family segments performed significantly well.

Lennar Corporation Price, Consensus and EPS Surprise

 

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

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Segment Details

Homebuilding: Segment revenues increased 13.4% year over year to $3.41 billion, driven by a higher number of homes delivered. Within this, home sales constituted $3.33 billion (up 13.7% year over year) and land sales accounted for $77.2 million (up 1.4%).

New home orders increased 11.5% year over year to 7,357 in the fiscal fourth quarter. The potential value of net orders increased 18.1% year over year to $2.8 billion.

Home deliveries increased 4.9% year over year to 8,633, buoyed by higher number of homes delivered across all homebuilding segments, barring East.

The average selling price (ASP) of homes delivered was $388,000, reflecting an increase of 8.4% year over year.

In the quarter under review, backlog grew 17% year over year to 8,935 homes. Potential housing revenues from backlog increased 23% year over year to $3.6 billion.

Margins

Gross margin on home sales contracted 90 basis points (bps) to 22.4%. This was due to higher land and construction costs per home.

As a percentage of home sales, SG&A (selling, general and administrative) expenses improved 30 bps to 8.4% from 8.7% a year ago. The improvement was due to a decrease in external broker commissions as a percentage of revenues from home sales and improved operating leverage.

Financial Services: Financial Services revenues increased 1.4% to $198.6 million in the quarter. Operating earnings at the segment were $42.1 million, down from $51.4 million a year ago.

Rialto Investments: Rialto Investments’ revenues of $73.4 million decreased from $81.5 million a year ago. The segment reported operating loss of $12 million in the quarter.

Lennar Multi-Family: Lennar Multi-Family revenues of $102.9 million increased from $92.2 million in the prior-year quarter.

The segment’s operating income was $38.6 million in the fourth quarter compared with $41.4 million in the year-ago quarter.

Financials

Lennar Homebuilding’s cash and cash equivalents totaled $2.3 billion as of Nov 30, 2017, up from $1.1 billion as of Nov 30, 2016. Net Lennar Homebuilding debt was $6.4 billion as of Nov 30, 2017 compared with $4.6 billion as of Nov 30, 2016.

Fiscal 2017 Highlights

Lennar’s earnings came in at $3.38 per share, down 12.4% year over year. Revenues of $12.6 billion, however, increased 15% from the fiscal 2016 level on an 11% increase in deliveries and a 4.1% increase in ASP.

Zacks Rank & Other Key Picks

Lennar currently carries a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the construction sector are D.R. Horton, Inc. DHI, KB Home KBH and NVR Inc. NVR, each sporting a Zacks Rank #1.

D.R. Horton is likely to witness a 39% increase in 2018 earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.

KB Home is expected to exhibit 33.5% growth in 2018 earnings.

NVR is expected to witness 20.6% growth in 2018 earnings.

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