) beat the Zacks Consensus Estimate for both earnings and
revenues on the back of the recovering housing market. The
housing recovery continued to boost both volume and prices for
this leading national homebuilder despite recent concerns among
investors about rising interest rates.
Lennar's second-quarter fiscal 2013 adjusted earnings
(excluding deferred tax valuation allowance) of 43 cents per
share beat the Zacks Consensus Estimate of 33 cents by 30.3%.
Earnings jumped 105% from the prior-year quarter earnings 22
A double-digit growth in homebuilding revenues and solid
margins boosted the earnings growth.
Including the income tax benefits, earnings came in at 61
cents per share against $2.06 per share in the second quarter of
fiscal 2012. In the quarter, Lennar reversed $41.3 million of
deferred tax asset valuation allowance.
Total revenue in the quarter grew 53.0% year over year to
$1.43 billion as both the Homebuilding and Financial Services
segments did significantly well in the quarter. Revenues also
beat the Zacks Consensus Estimate of $1.32 billion by 8.3%.
Homebuilding revenues grew 59% year over year to $1.28
billion. Home sales were $1.26 billion in the quarter, up 58%
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.
Despite recent increases in mortgage rates, the company
witnessed an increased demand in all its markets which suggests a
solid recovery in the U.S. housing market. Increased
affordability due to higher rentals is boosting demand. Supply
however, remains limited by low home inventories, both for new
and existing homes. Home prices have thus, moved up sharply with
the market demand gaining momentum and supply remaining
New home orders increased 27% to 5,705 homes in the second
quarter of 2013 due to increased demand.
New home deliveries, excluding unconsolidated entities, were
up 39% year over year to 4,449 homes in the reported quarter. It
was driven by an increase in demand in all the Homebuilding
segments. The average selling price (ASP) of homes delivered
stood at $283,000, up 13.0% year over year.
The backlog grew 55% in the quarter to 6,163 homes. Potential
housing revenues from backlog rose 76% to $1.9 billion. The
company is witnessing reduced sales incentives in some of its
communities. Sales incentives comprised 6.7% of home sales
revenues in the second quarter, lower than 10.7% in the
prior-year quarter and 8.0% in the first quarter of 2013.
Land sales amounted to $25.1 million in the quarter, up 16.4%
year over year.
Lennar has been strategically focusing on acquiring new home
sites in higher-margin well-positioned communities and is also
buying early stage raw lands. The company has enough land to
satisfy deliveries till 2014 and is now pursuing land
opportunities for 2015 and beyond. The company's solid land
position places it well to meet growing demands, thus giving it a
competitive edge over its peers.
Margins Go Up
Gross margin on home sales expanded 160 basis points (bps) to
24.1% 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 and material
Selling, general and administrative (SG&A) expenses were
$136.6 million in the second quarter of 2013, up 29.6% over the
prior-year period. As a percentage of sales, however, SG&A
improved 230 bps to 10.9% driven by better operating leverage as
volumes improve and absorption per community increases. Operating
margin on home sales improved 410 bps to 13.3%, due to improved
gross margin and SG&A ratio.
Financial Services segment's revenues climbed 34.4% to $119.1
million in the quarter driven mainly by increased homebuilding
deliveries and robust refinancing transactions. The operating
earnings of Financial Services were $29.2 million in the second
quarter of 2013 compared with $18.0 million in the prior-year
quarter. The improvement in profit was primarily attributable to
higher volumes and margins in the segment's mortgage and title
Rialto Investments' revenues slipped 23.3% to $25.7 million in
the quarter, owing to a decline in interest income caused by a
decrease in loan portfolios. Operating earnings declined 34.9%
year over year to $2.8 million from $4.3 million in the
prior-year quarter due to lower revenues. Both amounts are net of
The company expects to continue to achieve further
profitability in fiscal 2013, despite expectations of higher
input costs on the back of increasing demand with continued
housing recovery, solid backlog position, rising home prices,
strong liquidity position and its strategic land
Other Stocks to Consider
Lennar carries a Zacks Rank #2 (Buy). Lennar has been
witnessing solid year-over-year growth in new home orders, ASPs
and home closings for the past few quarters. We believe that the
company is performing better than its peers by increasing selling
prices, improving volumes, making opportunistic land acquisitions
and consistently delivering decent profit margins. In addition to
its homebuilding operations, growth will also come from its
multiple platforms including Rialto, Mutlifamily and Financial
Other stocks in the homebuilding sector that are performing
well and deserve a mention include
D. R. Horton Inc.
Ryland Group Inc.
Meritage Homes Corporation
), all carrying a Zacks Rank #1 (Strong Buy).
D R HORTON INC (DHI): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
MERITAGE HOMES (MTH): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
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