) beat expectations for both earnings and revenues in the second
quarter of 2014 despite a softer-than-anticipated spring selling
Lennar's second-quarter fiscal 2014 adjusted earnings of 61 cents
per share beat the Zacks Consensus Estimate of 51 cents by 19.6%.
Earnings jumped 41.9% year over year driven by double-digit growth
in homebuilding revenues and solid margins. Second-quarter 2013
earnings include a tax asset valuation allowance of $41.3 million.
Total revenue of $1.82 billion beat the Zacks Consensus Estimate of
$1.66 billion by 9.6%. Revenues also grew 27.3% year over
year as both the Homebuilding and Rialto segments did significantly
well in the quarter. Lennar Multifamily segment also contributed to
the total revenue during the quarter.
Homebuilding revenues increased 29.1% year over year to $1.64
billion. Home sales were $1.61 billion in the quarter, up 27.8%
year over year, driven by higher number of homes delivered and
solid pricing gains.
Despite a softer-than-expected spring selling season, demand in
most of the housing market exceeded supply. The housing demand was
driven by high affordability and an expensive rental market.
The supply of homes was however restricted by limited land
Despite slowing construction activity due to harsh weather
conditions, new home orders increased 8% year over year to 6,183
homes in the second quarter. The potential value of net orders
increased 26% year over year to $2.4 billion.
New home deliveries, excluding unconsolidated entities, were up
12.0% year over year to 4,987 homes in the reported quarter. The
increase was driven by demand growth in all the homebuilding
segments, excluding Southeast Florida.
The average selling price (ASP) of homes delivered was $322,000, up
13.8% year over year and 1.9% sequentially.
Backlog grew 11% year over year in the quarter to 6,858 homes.
Potential housing revenues from backlog rose 26% year over year to
The company reduced sales incentives during the quarter. Sales
incentives comprised 5.9% of home sales revenues in the second
quarter, lower than 6.7% in the prior-year quarter and 6.3% in the
Land sales amounted to $29.4 million in the quarter, significantly
up from $13.6 million in the prior-year quarter. The company's
solid land position places it well to meet the growing demand, thus
giving it a competitive edge over its peers.
Gross margin on home sales expanded 140 basis points (bps) to 25.5%
on the back of a rise in ASP, continued momentum from land
acquisition strategy and reduced incentives.
As a percentage of sales, however, selling, general and
administrative (SG&A) expenses were down 10 bps to 10.8%,
driven by better operating leverage owing to volume
improvement. Operating margin on home sales improved 140 bps to
14.7% during the quarter, buoyed by strong pricing power and better
Financial Services segment's revenues declined 6.8% to $111.0
million in the quarter due to a significant slowdown in the
refinance business. Operating earnings of Financial Services were
$18.3 million, down 37.3% year over year from $29.2 million in the
prior-year quarter, due to lower profit per transaction and a
decline in volumes in title operations.
Rialto Investments' revenues of $54.4 million increased 111.7% year
over year from $25.7 million in the prior-year quarter helped by
the new mortgage loan origination business, Rialto Mortgage Finance
and interest income for managing and servicing assets.
Rialto Investments reported operating earnings of $13.4 million in
the second quarter of 2014 (which includes a $3.7 million operating
loss and an add back of $17.1 million of net loss attributable to
non-controlling interests). Operating earnings in the second
quarter of 2014 increased from operating earnings of $2.8 million
(including $8.5 million of operating earnings counteracted by $5.7
million of net earnings attributable to non-controlling interests)
in the second quarter of 2013.
During the fourth quarter of 2013, the Lennar Multifamily
operations were separated from the Homebuilding segment and became
an independent segment.
Lennar Multifamily revenues increased 51.2% year over year to $18.6
million in the reported quarter. The segment incurred a start-up
operating loss of $7.2 million in the second quarter compared with
a loss of $1.4 million last year owing to increased general and
Lennar had homebuilding cash and cash equivalents of $628 million
as of May 31, 2014, compared with approximately $646 million as of
Feb 28, 2014.
In Jun 2014, the company increased its credit facility to $1.5
billion and extended its maturity to Jun 2018. The company has no
amount outstanding on its $950 million unsecured revolving credit
Lennar remains optimistic about the recovery of the housing market.
The company expects high affordability, high rental market and
supply shortages to drive housing demand in the upcoming quarters.
With a huge pipeline exceeding $4 billion and 17,000 apartments,
Lennar expects the multifamily rental segment to make significant
contribution to earnings in the near future. The company
expects to sell its first apartment community in the third quarter
of 2014 and expects a regular pattern of sales from the
second half of 2015.
Lennar carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the building construction/building products
sector can consider stocks like
United Rentals, Inc.
TRI Pointe Homes, Inc.
). All the three companies hold a Zacks Rank #2 (Buy).
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