) reported net earnings of 26 cents per share in the first
quarter of fiscal 2013, beating the comparable prior-year
earnings by 225%. The earnings beat was driven by double-digit
growth in homebuilding revenues and solid operating margins.
Earnings also surpassed the Zacks Consensus Estimate of 13 cents
In the quarter, the company reversed $25.1 million of deferred
tax asset valuation allowance of the $63.7 million that remained
at the end of the Feb 28. After adjusting for an income tax
provision of $21.5 million related to pre-tax earnings, the net
income tax benefit was $3.6 million.
Total revenue in the quarter grew 36.6% year over year to $990
million, driven by both pricing and volume growth in a
stabilizing housing market. Home closings, new orders, and
backlog were all up in double digits from the year-ago period.
Revenues also beat the Zacks Consensus Estimate of $934 million
Homebuilding revenues grew 39.1% year over year to $868.4
million, driven by solid home sales. Home sales were $855.1
million in the quarter, up 40% year over year driven by improved
sale prices and an impressive increase in the number of homes
delivered. Land sales amounted to $13.4 million in the quarter,
down 2.2% year over year. The company spent $500 million on land
purchase in the quarter.
New home orders increased 34% to 4,055 homes in the first quarter
of 2013. The boom in net orders was due to a steady recovery in
the housing market. This was backed by higher consumer
confidence, stabilizing home prices and low interest rates.
Buyers choose to purchase homes as renting became an expensive
New home deliveries, excluding unconsolidated entities, were up
28% year over year to 3,174 homes in the reported quarter. It was
driven by an increase in demand in all homebuilding segments. The
average sales price of homes delivered stood at $269,000, up 9.3%
year over year as the housing market continues to stabilize.
Backlog grew 82% in the quarter to 4,922 homes. Potential housing
revenues from backlog rose 105% to $1.5 billion. The company has
begun to witness reduced sales incentives in some of its
communities. Sales incentives comprised 8.0% of home sales
revenues in the first quarter, lower than 12.2% in the prior-year
Gross margin on home sales expanded 120 basis points to 22.1% on
the back of a rise in average sales price, increased number of
deliveries from higher margin communities, and reduced
incentives, which offset headwinds from rising labor and material
costs. Operating margin on home sales improved 410 basis points
to 10.1%, driven by price increases and incentive reductions.
Selling, general and administrative (SG&A) expenses were
$102.2 million in the first quarter of 2013, up 12.2% over the
prior-year period. As a percentage of sales, however, SG&A
improved 290 basis points to 12.0% driven by better operating
leverage due to higher absorption rate.
Financial Services segment revenues climbed 40.6% to $95.9
million in the quarter driven mainly by growing homebuilding
operations and robust refinancing transactions. The operating
earnings of Financial Services were $16.1 million in the first
quarter of 2013 compared with $8.3 million in the prior-year
The improvement in profit was primarily attributable to higher
volumes and margins in the segment's mortgage operations due to
increased number of homes delivered and refinance transactions.
Rialto Investments revenues slipped 20.5% to $25.6 million in the
quarter, owing to decline in interest income as a result of
decrease in loan portfolios. Operating earnings declined 72.5%
year over year to $1.4 million (net of $0.3 million net earnings
attributable to non-controlling interest) due to lower interest
income as a result of a decrease in the loans portfolio.
The company expects to continue to achieve further profitability
in fiscal 2013 on the back of rising home prices, strong
liquidity position, solid backlog, strategic land acquisitions
and new community openings.
Lennar carries a Zacks Rank #3 (Hold).
Stocks in the homebuilding sector that are performing well and
deserve a mention include
) carrying a Zacks Rank #1 (Strong Buy), and
D. R. Horton Inc.
Hovnanian Enterprises Inc.
), carrying a Zacks Rank #2 (Buy).
D R HORTON INC (DHI): Free Stock Analysis
HOVNANIAN ENTRP (HOV): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
NVR INC (NVR): Free Stock Analysis Report
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