Lennar Reports Surprise Profit on Distressed-Investment Unit, Settlement

Lennar Corp. (LEN), the second-most profitable U.S. homebuilder last year, unexpectedly reported net income for the first quarter after booking a lawsuit settlement and adding income from its distressed-investing unit.

Net income in the three months ended Feb. 28 was $27.4 million, or 14 cents a share, the Miami-based company said in a statement today. Analysts predicted a loss of 7 cents a share, the average of 16 estimates in a Bloomberg survey. A year earlier, Lennar had a loss of 6.5 million, or 4 cents a share.

As U.S. homebuilders struggle with competition from foreclosures and weak demand, Lennar has outperformed rivals by cutting expenses and investing in distressed real-estate assets through its Rialto Investments unit, said Jack Micenko, an analyst with Susquehanna International Group LLP in New York. The company received $37.5 million from a settlement tied to a San Diego-based developer who was a joint-venture partner.

“Lennar’s got its business to a point where they can make money even in a low-delivery environment,” Micenko said in an interview today on Bloomberg Television. “Even if the housing market stays flat, we think profits from Rialto will drive earnings.”

The company has reported a profit for four consecutive quarters. Rialto generated operating profit of $11 million during the quarter, compared with a $1 million loss a year ago.

Lawsuit Settlement

Nicolas Marsch III, the developer that sued Lennar after their ventures lost money, hired Barry Minkow, a former convict and founder of a fraud-detection firm who released a report in January 2009 that called Lennar “a Ponzi scheme.” Minkow was accused by federal prosecutors in a March 25 charging document of conspiracy to commit securities fraud against Lennar for spreading false and defamatory information about the company.

Marsch was the unnamed Conspirator A in the charging document, according to Lennar attorney Daniel Petrocelli. Lennar’s earnings included $29.5 million from the settlement.

Looking only at Lennar’s homebuilding segment, the result “was disappointing,” Stephen East, an analyst with Ticonderoga Securities LLC in New York, said in a note to clients today. “Rialto did well again, but the homebuilding operations look much like other builders.”

New Home Orders

Lennar’s revenue fell to $558 million from $574 million a year earlier. New home orders dropped 12 percent to 2,267.

The year-ago orders were boosted by government tax credits valued at as much as $8,000 for first-time homebuyers. The incentive was originally set to expire in November 2009 and later was extended for contracts signed by April 30.

Sales of new U.S. homes plunged 16.9 percent to a record- low annual pace of 250,000 in February, the Commerce Department said March 23.

Lennar’s results were released before the start of regular U.S. trading. The shares fell 88 cents as of 1:20 p.m. in New York Stock Exchange composite trading. They gained 7.9 percent in the past 12 months through yesterday, compared with a 10 percent decline in the 12-member Standard & Poor’s Supercomposite Homebuilding index.

To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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