) first-quarter fiscal 2014 earnings of 35 cents per share beat
the Zacks Consensus Estimate of 27 cents by 29.6%. Earnings
jumped 34.6% from 26 cents reported in the prior-year quarter.
Double-digit growth in homebuilding revenues and solid margins
aided earnings growth. First-quarter earnings include a tax
provision of $45.9 million against a tax benefit of $3.6 million
Total revenue of this leading homebuilder grew 38% year over year
to $1.36 billion as both the Homebuilding and Rialto Investments
segments did significantly well in the quarter. Revenues also
beat the Zacks Consensus Estimate of $1.29 billion by 5.4%.
Homebuilding revenues increased 41.8% year over year to $1.23
billion. Home sales were $1.1 billion in the quarter, up 33% year
over year, driven by pricing gains and increased number of homes
delivered. Land sales amounted to $91.2 million in the quarter,
up from $13.4 million in the prior-year quarter.
New home orders increased 10% year over year to 4,465 homes in
the first quarter on increased demand. However, net order growth
declined sequentially due to harsh weather conditions, which
slowed down the sales pace. The potential value of net orders
increased 26% year over year to $1.5 billion.
New home deliveries, excluding unconsolidated entities, were up
13.3% year over year to 3,597 homes in the reported quarter. The
increase was driven by demand growth in all the homebuilding
segments, excluding Central. The average selling price (ASP) of
homes delivered was $316,000, up 17.5% year over year and 2.9%
Backlog grew 15% year over year in the quarter to 5,662 homes.
Potential housing revenues from the backlog rose 33% year over
year to $1.9 billion.
Sales incentives comprised 6.3% of home sales revenues in the
first quarter, lower than 8.0% in the prior-year quarter and flat
Gross margin on home sales expanded a massive 300 basis points
(bps) to 25.1% on the back of a rise in ASP, favorable product
mix (increased deliveries from higher margin communities), a $5.5
million insurance recovery and reduced incentives, which offset
headwinds from rising labor, land and material costs. The company
claimed that continued momentum in land acquisition and an
increase in average selling prices drove margins.
Selling, general and administrative (SG&A) expenses were
$135.1 million in the first quarter of fiscal 2014, up 32.2% over
the prior-year period. As a percentage of sales, however,
SG&A improved 20 bps to 11.8%, driven by better operating
leverage as volumes improved. Operating margin on home sales
improved 310 bps to 13.2% during the quarter, buoyed by higher
gross margin and improved SG&A ratio.
Financial Services segment's revenues declined 19.7% to $77.0
million in the quarter due to a significant slowdown in the
refinance business. Operating earnings of Financial Services were
$4.5 million, down from $16.1 million from the prior-year
quarter. Operating earnings declined due to lower profit per
transaction and a decline in refinance volume in mortgage and
Rialto Investments' revenues increased 83.3% year over year to
$47.0 million in the quarter, owing to the commencement of the
new mortgage loan origination business, Rialto Mortgage Finance.
Operating earnings increased from $1.7 million in the prior-year
quarter to $2.6 million on higher revenues. Also, the shift from
a balance sheet investment company to a fund investment model
benefited earnings in the quarter. Both amounts are net of
During the fourth quarter of 2013, the Lennar Multifamily
operations were separated from the Homebuilding segment and
became an independent segment. Lennar Multifamily is involved in
the development of multifamily rental properties in premium
markets in California through unconsolidated entities.
Lennar Multifamily revenues increased to $7.8 million in the
reported quarter from $297K in the prior-year quarter. The
segment incurred a start-up operating loss of $6.2 million in the
first quarter compared with a loss of $3.5 million last year
owing to increased general and administrative expenses.
The company continues to expect a strong spring selling season
for fiscal 2014 on the back of sequential improvement in traffic
and new orders.
Lennar Corporation carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the homebuilding sector can also consider
William Lyon Homes
Taylor Morrison Home Corp.
DR Horton Inc.
). While William Lyon Homes and Taylor Morrison Home Corp. sport
a Zacks Rank #1 (Strong Buy), DR Horton carries a Zacks Rank #2
D R HORTON INC (DHI): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
TAYLOR MORRISON (TMHC): Free Stock Analysis
WILLIAM LYON HM (WLH): Get Free Report
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