Lennar Jumps to Highest Since 2007 on Earnings Beat
Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, rose to the highest in almost six years after reporting a better-than-estimated profit and a 34 percent jump in orders in the fiscal first quarter.
Net income climbed to $57.5 million, or 26 cents a share, in the three months through February, from $15 million, or 8 cents, a year earlier, the Miami-based company said today in a statement. Analysts expected earnings of 15 cents a share, the median of 15 estimates compiled by Bloomberg.
Lennar and other U.S. builders are benefiting from revived demand for new homes as the inventory of existing houses for sale shrinks and buyers take advantage of mortgage rates that are close to record lows. Builders broke ground on new homes at an annual pace of 917,000 in February, and building permits rose to a 946,000 rate, the most since June 2008, the Commerce Department reported yesterday.
“Housing is recovering and the recovery is consistent, healthy and growing stronger,” Chief Executive Officer Stuart Miller said during a conference call with analysts. “The recovery is based on strong market fundamentals.”
U.S. home prices are expected to rise as much as 8 percent this year, up from previous estimates of 4 percent to 6 percent, Morgan Stanley analysts led by Vishwanath Tirupattur said in a note yesterday. JPMorgan Chase & Co. and Bank of America Corp. have also raised their home-price forecasts this month.
Lennar jumped 4.8 percent to $43.40 at the close in New York, the highest price since June 6, 2007. It was the second- best performer in the 11-member Standard & Poor’s Supercomposite Homebuilding Index (S15HOME), which advanced 3.7 percent.
Lennar’s results included the reversal of a $25 million deferred tax asset. Without that, earnings would have been about 15 cents a share, according to David Goldberg, an analyst with UBS AG in New York.
“Results for the homebuilding segment were impressive,” Goldberg, who has a neutral rating on the company and expected earnings of 18 cents, said in a note today. “Revenues rose 40 percent year on year -- ahead of our 30 percent estimate -- with units up 28 percent and price up 9 percent.”
Lennar has been raising prices at least once a month in all of its communities and deliberately slowing sales in some areas with high demand, Chief Operating Officer Jon Jaffe said on the conference call.
“There are many communities which we do meter the rate of sales and suppress it below what the market would demand,” Jaffe said. “So in that case, we are seeing more significant price increases.”
Total revenue rose 37 percent in the quarter from a year earlier to $989.9 million. Lennar delivered 3,186 homes with an average price of $269,000, compared with 2,482 homes for an average of $246,000 in the first quarter of 2012. Orders jumped to 4,055 homes from 3,022 a year earlier.
Lennar’s gross margins narrowed to 22.1 percent in the first quarter from 23.5 percent in the previous three months because the cost of construction is higher during the winter. The company expects gross margins to average 23 percent to 24 percent for the fiscal year, Chief Financial Officer Bruce Gross said on the call.
Lennar builds homes in 18 states for customers ranging from first-time buyers to retirees. It also plans to develop $1 billion worth of apartments, starting with 3,000 units this year, to meet demand from people who aren’t able to buy, Miller said in January.
Confidence among U.S. homebuilders fell in March even as demand grew because of bottlenecks such as a limited supply of lots and rising material and labor costs, the National Association of Home Builders said on March 18.
Lot shortages are less of a concern for Lennar, which spent more than $500 million on land in the first quarter, Miller said. The homebuilder is now focusing on acquiring lots to build homes in 2015 and beyond, enabling the company to increase its market share, he said.
“The larger builders have had access to capital and land while the market was depressed and since then, land prices have moved significantly,” Miller said. “Late participants in the land market are having difficulty participating in the market recovery.”
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