Lennar Quarterly Profit Beats Estimates as Prices Climb

Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, reported a jump in quarterly earnings that beat analyst estimates as the company sold more homes and raised prices.

Net income climbed to $120.7 million, or 54 cents a share, in the three months through August from $87.1 million, or 40 cents, a year earlier, the Miami-based company said in a statement today. Analysts expected Lennar to earn 45 cents, the average of 18 estimates compiled by Bloomberg.

Lennar and other publicly traded builders have been able to increase their earnings amid tight supplies of existing homes on the market and rising demand from buyers. The companies are at risk of their profit margins narrowing as higher mortgage rates limit their ability to raise prices further and require them to offer more incentives to complete sales.

“There was that little bit of sticker shock associated with the rate increase,” Lennar Chief Executive Officer Stuart Miller said during an earnings conference call. “We see just strong viable fundamental demand out there. But it’s cooled a little bit.”

Lennar gained 4.3 percent to $36.01, compared with a 2.3 percent increase in the 11-member Standard & Poor’s Supercomposite Homebuilding Index. The stock has lost about 18 percent from a May high on concern rising interest rates will curb demand.

Order Slowdown

The company’s orders, an indication of more recent demand, climbed 14 percent in the fiscal third quarter to 4,785 homes. That slowed from 27 percent growth in the previous three months and a 34 percent increase in the first quarter.

Third-quarter revenue rose to $1.6 billion from $1.1 billion a year earlier as the number of houses delivered increased to 4,990 houses from 3,655. The average sales price climbed to $291,000 from $258,000.

“This result, top to bottom, is about as good as we could envision in this unsettled rate environment,” Stephen East, an analyst at International Strategy & Investment Group LLC in St. Charles, Missouri, said of Lennar in a note today.

KB Home (KBH), a Los Angeles-based builder that targets first-time buyers, today reported a 9 percent decline in orders, while profit exceeded analyst estimates. That company is especially vulnerable to rising mortgage rates because many of its customers are first-time buyers in the already pricey California market, according to Jay McCanless, a Nashville, Tennessee-based analyst at Sterne Agee & Leach Inc.

New-home sales in the U.S. probably reached an annual pace of 420,000 in August, the median of 75 estimates compiled by Bloomberg, compared with 394,000 in July and 455,000 in June. The Commerce Department reports new home sales tomorrow.

To contact the reporters on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net; Patrick Gower in London at pgower@bloomberg.net

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

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