Lennar Beats 4Q Earnings, Revs - Analyst Blog

By Zacks Equity Research,

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Lennar Corporation ( LEN ) beat the Zacks Consensus Estimate on both earnings and revenues for the fourth quarter 2013 on the back of the housing market recovery which continued to boost both volume and prices for this leading national homebuilder despite recent concerns among investors about rising interest rates.

Lennar's fourth-quarter fiscal 2013 earnings of 73 cents per share beat the Zacks Consensus Estimate of 64 cents by 14.1%. Earnings jumped 30.4% from 56 cents earned in the prior-year quarter. Double-digit growth in homebuilding revenues and solid margins aided the earnings growth.

The fourth quarter 2013 earnings included $94.0 million in tax provision, whereas fourth quarter 2012 earnings included $18.6 million in tax benefit.

Total revenue grew 41.8% year over year to $1.92 billion as both Homebuilding and Rialto Investments segments did significantly well in the quarter. Revenues also beat the Zacks Consensus Estimate of $1.87 billion by 53.5%.  

Homebuilding Revenues

Homebuilding revenues increased 47.9% year over year to $1.76 billion. Home sales were $1.73 billion in the quarter, up 50.4% year over year driven by both pricing and volume growth in a solid housing market. Home closings, new orders and backlog were all up in double-digits from the year-ago period.

New home orders increased 13% to 4,498 homes in the fourth quarter on increased demand. The potential value of the net order increased 34% year over year to $1.4 billion.

New home deliveries, excluding unconsolidated entities, were up 27% year over year to 5,650 homes in the reported quarter. The increase was driven by demand growth in all the Homebuilding segments. The average selling price (ASP) of homes delivered was $307,000, up 17.6% year over year.

The backlog grew 19% year over year in the quarter to 4,806 homes. Potential housing revenues from the backlog rose 40% year over year to $1.6 billion. The company reduced sales incentives during the quarter. Sales incentives comprised 6.3% of home sales revenues in the fourth quarter, lower than 9.0% in the prior-year quarter and higher than 6.0% in the third quarter of 2013.

Expanding Margins

Gross margin on home sales expanded 330 basis points (bps) to 26.8% on the back of a rise in ASP, favorable product mix (increased deliveries from higher margin communities) and reduced incentives which offset headwinds from rising labor, land and material costs.

As a percentage of sales, however, SG&A improved 140 bps to 9.9%, driven by better operating leverage as volumes improved and absorption per community increased. Operating margin on home sales improved 470 bps to 16.9%, buoyed by higher gross margin and SG&A ratio.

Financial Services

Financial Services segment's revenues declined 17.6% to $99.7 million in the quarter. The operating earnings of Financial Services were $17.0 million, down from $33.2 million from the prior-year quarter. The decline in profit was primarily due to lower volumes and profit per transaction following a decline in refinance volume in the mortgage operations.

Rialto Investments

Rialto Investments' revenues increased 63.6% year over year to $58.9 million in the quarter, owing to the commencement of Rialto Mortgage Finance Business. Operating earnings increased year over year to $13.9 million from $4.6 million in the prior-year quarter on higher revenues.

Lennar Multifamily

Lennar Multifamily revenues increased to $1.50 million in the reported quarter from $247 thousands from the prior- year quarter.

Fiscal 2013

Revenue increased 45% year over year to $5.9 billion for fiscal 2013, due to double-digit growth in number of home closed and net orders.


The company is positive about fiscal 2014 on the back of increasing demand with continued housing recovery, solid backlog position, rising home prices, strong liquidity position and its strategic land acquisitions.

Another homebuilding company Toll Brothers, Inc. ( TOL ) reported its fourth quarter earnings on Dec 10, 2013. The company surpassed both revenue and earnings estimates in the fourth quarter of fiscal 2013 attributable to aggressive pricing and increased number of homes delivered, both of which exceeded the company's guided range by a wide margin.

Lennar carries a Zacks Rank #3 (Hold). Better-ranked homebuilding companies include Meritage Homes Corp. ( MTH ) and M/I Homes, Inc. ( MHO ). Both the companies carry a Zacks Rank #2 (Buy).

LENNAR CORP -A (LEN): Free Stock Analysis Report

M/I HOMES INC (MHO): Free Stock Analysis Report

MERITAGE HOMES (MTH): Free Stock Analysis Report

TOLL BROTHERS (TOL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: ASP , LEN , MHO , MTH , TOL

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