Lennar (LEN) Q3 Earnings Top, Revenues Miss, Shares Fall

Lennar Corporation’s LEN shares dropped 3.26% in the after-hours trading session on Sep 20, following its third-quarter fiscal 2021 (ended Aug 31, 2021) earnings release. Quarterly earnings topped the Zacks Consensus Estimate but revenues missed the same, thanks to unprecedented supply chain challenges. Also, the company’s quarterly deliveries came below the guided range.

Nonetheless, Stuart Miller, Executive Chairman of Lennar, said, "Despite missing our delivery guidance, new home demand remains strong, even as the market reverts back to traditional seasonality. This is reflected in our 5% year over year sales growth and third quarter homebuilding gross margin of 27.3%, which was the highest quarterly percentage in the Company's history, and a 420 basis point improvement over the prior year.”

It reported adjusted quarterly earnings of $3.27 per share, surpassing the Zacks Consensus Estimate of $3.24 by 0.9%. This marked the 10th consecutive quarter of an earnings beat. In the year-ago period, it reported earnings of $2.12 per share. The reported results mainly benefited from effective cost control and focus on making its homebuilding platform more efficient, which in turn resulted in higher operating leverage.

Revenues of $6.94 billion missed the consensus mark of $7.27 billion by 4.5%. That said, the reported figure grew 18.2% year over year.

Lennar Corporation Price and EPS Surprise

Lennar Corporation Price and EPS Surprise
Lennar Corporation price-eps-surprise | Lennar Corporation Quote

Segment Details

Homebuilding: Revenues at the segment totaled $6.56 billion, up 19.1% from the prior-year quarter. Within the Homebuilding umbrella, home sales contributed $6.51 billion to total revenues, up 19% from a year ago. Land sales accounted for $45.1 million, up from $34.3 million in the prior-year quarter.

Home deliveries for the reported quarter improved 10% from the year-ago level to 15,199 units, which is about 600 homes below the low end of the company’s guidance. The average sales price of homes delivered was $428,000, up 8% from the year-ago figure.

New orders grew 5% from the year-ago quarter to 16,277 homes. The potential value of net orders also increased 19% year over year to $7.5 billion.

Backlog at fiscal third quarter-end climbed 31% from a year ago to 25,819. Potential housing revenues from backlog also advanced 52% year over year to $12 billion.

Homebuilding Margins

Gross margin on home sales was 27.3% for the quarter, up 420 basis points (bps). The upside can be attributed to pricing power, its efforts toward reducing construction costs and a solid housing market scenario.

Selling, general and administrative or SG&A expenses — as a percentage of home sales — improved 100 bps to 7% on improved operating leverage, given benefits from the company's technology efforts. This marks the lowest percentage for a quarter in Lennar’s history.

Homebuilding operating earnings of $1.33 billion for the quarter increased from the year-ago level of $813.7 million.

Financial Services: The segment’s revenues decreased 11.5% year over year to $207 million for the reported quarter. Operating earnings for the quarter also declined from a year ago owing to lower mortgage net margins, given an increase in competition.

Lennar Multi-Family: Revenues of $167.9 million at the segment were up 45.8% from the prior-year quarter. The segment incurred an operating loss of $9.39 million for the quarter versus a loss of $5.1 million a year ago.

Lennar Other: The segment’s revenues totaled $8 million, down from $12.9 million a year ago. The segment’s operating earnings were $492 million for the quarter versus $8 million in the comparable period of 2020.

Financials

Lennar had homebuilding cash and cash equivalents of $2.62 billion as of Aug 31, 2021, down from $2.7 billion on Nov 30, 2020. Total homebuilding debt was $5.54 billion as of Aug 31, 2021, down from $5.96 billion on Nov 30, 2020. Homebuilding debt to capital at fiscal third quarter-end was 21.2% (an all-time company low) compared with 24.9% at fiscal 2020-end.

The company has no outstanding borrowings under the $2.5-billion revolving credit facility, thereby providing $5.1 billion of available capacity.

Guidance

For fourth-quarter fiscal 2021, Lennar expects deliveries of 18000 homes and homebuilding gross margin to be 28%. New orders are likely to be between 15,200 and 15,400 units, and ASP is projected at $445,000. SG&A expenses, as a percentage of home sales, are likely to be 6.7% for the quarter.

Zacks Rank

Lennar currently carries a Zacks Rank #4 (Sell).

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

Some better-ranked stocks in the Zacks Building Products - Home Builders industry include MI Homes, Inc. MHO, Meritage Homes Corporation MTH and Century Communities, Inc. CCS. While MI Homes and Meritage Homes currently sport a Zacks Rank #1, Century Communities carries a Zacks Rank #2 (Buy).

MI Homes, Meritage Homes, and Century Communities’ earnings for the current year are expected to rise 63.3%, 72.4%, and 115.9%, respectively.

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