Lennar CorporationLEN performed impressively and beat expectations on both counts for the second time in a row in fiscal 2016.
Lennar's second quarter fiscal 2016 adjusted earnings of 95 cents per share surpassed the Zacks Consensus Estimate of 87 cents by 9.2%. Earnings jumped 20.3% year over year driven by an increase in homebuilding revenues and lower number of outstanding shares.
LENNAR CORP -A Price, Consensus and EPS Surprise
Total revenue of $2.746 billion beat the Zacks Consensus Estimate of $2.573 billion by 6.7%. Revenues also grew 15% year over year as homebuilding, Rialto and multi-family segments performed significantly well in the quarter.
Homebuilding revenues increased 15.6% year over year to $2.45 billion, driven by higher number of homes delivered and an increase in average sales price of homes delivered.
New home orders increased 10% year over year to 7,962 in the second quarter of fiscal 2016. The potential value of net orders increased 11% year over year to $2.9 billion.
New home deliveries, excluding unconsolidated entities, were up 12% year over year to 6,711 driven by higher number of homes delivered across all the homebuilding segments excluding Houston and Other. The number of homes delivered declined in Houston, as volatility in the energy sector hurt housing demand. The number of homes delivered declined in Other, owing to an increased mix of start-up communities, which will take more time in delivering homes than the mature communities.
The average selling price (ASP) of homes delivered was $362,000, up 4% year over year.
Backlog grew 12% year over year in the quarter to 9,014 homes. Potential housing revenues from backlog rose 15% year over year to $3.3 billion.
The company decreased sales incentives during the quarter. Lennar's sales incentives comprised 5.7% of home sales revenues in the second quarter, down 10 basis points (bps) year over year. However, incentives increased 10 bps from 5.6% in the previous quarter.
Land sales amounted to $21.3 million in the quarter, significantly down from $34.7 million in the prior-year quarter.
Gross margin on home sales declined 70 basis points (bps) to 23.1% owing to rising land costs, partially offset by higher average sales price of homes delivered. However, gross margin on home sales improved 40 bps sequentially.
Operating margin on home sales increased 10 bps to 13.9%. Operating margin on home sales improved 200 bps sequentially.
As a percentage of sales, SG&A expenses improved 70 bps to 9.3% driven by improved operating leverage from increased number of homes delivered and benefits from increased focus on digital marketing. Sequentially, SG&A expenses improved 150 bps.
Financial Services revenues increased 3.5% to $175.9 million in the quarter. Operating earnings of the segment were $44.1 million, up 13% from $39.1 million in the prior-year quarter due to increased profit per transaction in mortgage and title operations.
Rialto Investments' revenues of $44.8 million decreased 34% year over year due to a decline in Rialto Mortgage Finance securitization revenues owing to lower securitization volume and margins.
Lennar Multi-Family revenues of $74.2 million increased 90.3% in the reported quarter from $39 million in the prior year quarter.
The segment's operating income was $14.9 million in the second quarter as against a loss of $8.7 million in the year-ago quarter, driven by the sale of an apartment property by one of the joint ventures and a third-party land sale.
Lennar currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the construction sector include Masco Corporation MAS , TopBuild Corp. BLD and GCP Applied Technologies Inc. GCP . While TopBuild sports a Zacks Rank #1 (Strong Buy), Masco and GCP have a Zacks Rank #2 (Buy).