) beat the Zacks Consensus Estimate for both earnings and
revenues in the third quarter of fiscal 2013, for the fifth
quarter in a row.
Lennar's third-quarter fiscal 2013 adjusted earnings
(excluding deferred tax valuation allowance) of 54 cents per
share beat the Zacks Consensus Estimate of 46 cents by 17.4%.
Earnings increased 35% from the prior-year quarter earnings of 40
cents driven by double-digit growth in homebuilding revenues and
Total revenue in the quarter grew 46.0% year over year to $1.6
billion driven by revenue growth in the Homebuilding segment.
Revenues also beat the Zacks Consensus Estimate of $1.57 billion
Homebuilding revenues grew 53% year over year to $1.46
billion. Home sales were $1.45 billion in the quarter, up 55%
year over year, driven by both pricing and volume growth in a
solid housing market.
With the recent improvement in economic conditions and the
housing market in general, mortgage rates are edging upwards to
more normalized levels. Despite the rising interest rates, the
company witnessed an increased demand in all its markets and was
able to push pricing further.
New home orders increased 14% to 4,785 homes in the third
quarter of 2013. However, net order growth declined sequentially
which we believe is due to a "moderating sales pace." The dollar
value of new home orders grew 32% to $1.5 billion.
New home deliveries, excluding unconsolidated entities, were
up 37% year over year to 4,972 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 $291,000, up 13.0% year over year.
The backlog grew 32% in the quarter to 5,958 homes. Potential
housing revenues from backlog rose 53% to $1.9 billion. The
company is witnessing reduced sales incentives in some of its
communities. Sales incentives comprised 6.0% of home sales
revenues in the third quarter, lower than 9.2% in the prior-year
quarter and 6.7% in the second quarter of 2013. Cancellation rate
was 18% in the quarter.
Land sales amounted to $14.0 million in the quarter, down 39%
year over year. The company has enough land to satisfy deliveries
until 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
Margins Go Up
Gross margin on home sales expanded 170 basis points (bps) to
24.9% 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
costs. Gross margin was slightly better than management's
expectation of 24.25%.
Selling, general and administrative (SG&A) expenses were
$148.3 million in the third quarter of 2013, up 32.2% over the
prior-year period. As a percentage of sales, however, SG&A
improved 180 bps to 10.2% driven by better operating leverage as
volumes improve and absorption per community increases. Operating
margin on home sales improved 350 bps to 14.7%, due to improved
gross margin and SG&A ratio.
Financial Services segment's revenues climbed 5.5% to $112.6
million in the quarter. The operating earnings of Financial
Services were $23.5 million in the third quarter of 2013 lower
than $25.3 million in the prior-year quarter due to lower volumes
in the mortgage operations.
Rialto Investments' revenues slipped 25.3% to $27.8 million in
the quarter, owing to a decline in interest income caused by a
decrease in loan portfolios. Operating earnings declined 80.5%
year over year to $1.5 million from $7.7 million in the
prior-year quarter due to lower revenues. Both amounts are net of
Management highlighted that the home sales pace was
moderating. Chief Executive Officer Stuart Miller also talked
about "bumps along the road" that could hurt short-term demand,
possibly indicating at the recent increases in interest/mortgage
rates. However, Miller seemed confident of seeing strong demand
over the long term due to supply shortages.
While high affordability levels, increased rentals and
historically-low interest rates are increasing the housing
demand, supply remains limited by low home inventories, both for
new and existing homes. A shortage of land and labor is
restricting the production of homes.
Home prices have thus started moving up with market demand
gaining momentum but supply remaining limited. In fact, rising
home prices and thinning home inventories have created a sense of
urgency among homebuyers to buy a house before prices shoot up
The company expects profitability to improve on the back of
its solid backlog position, rising home prices, strong liquidity
position and strategic land acquisitions. In addition to its
homebuilding operations, growth is also expected to come from its
multiple platforms including Rialto, Mutlifamily and Financial
Other Stocks to Consider
Lennar carries a Zacks Rank #3 (Hold). Other stocks in the
homebuilding/building products sector that are performing well
and deserve a mention include
Standard Pacific Corp.
CaesarStone Sdot-Yam Ltd.
). While SPF and MAS carry a Zacks Rank #2 (Buy), CSTE carries a
Zacks Rank #1 (Strong Buy).
CAESAR STONE SD (CSTE): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
MASCO (MAS): Free Stock Analysis Report
STANDARD PAC (SPF): Free Stock Analysis
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