Lennar Profit Beats Estimates as Home Prices Increase

Lennar Corp. (LEN), the second-biggest U.S. homebuilder by market value, reported a quarterly profit that beat analysts’ estimates as it increased prices and earnings jumped at its Rialto Investments division.

Net income was $164.1 million, or 73 cents a share, for the fiscal fourth quarter ended Nov. 30, compared with $124.3 million, or 56 cents, a year earlier, the Miami-based company said in a statement today. Analysts expected earnings of 62 cents a share, the average of 19 estimates compiled by Bloomberg.

Publicly traded builders have been cutting costs, increasing prices and adding lots to take advantage of the housing recovery. Lennar’s gross margin, a measure of profitability, rose to the second highest in its history as the company reduced incentives and sold homes at higher values.

“The beat was driven by better deliveries and gross margin, which came in ahead of expectations, as well as better Rialto earnings,” Jack Micenko, a New York-based analyst at Susquehanna International Group LLP, said in a note to clients.

Rialto, which invests in distressed real estate, reported operating earnings of $15.6 million, up from $4.8 million a year earlier, including earnings attributable to noncontrolling interests.

Photographer: David Paul Morris/Bloomberg

The silhouette of a contractor setting rebar is seen at a Lennar Corp.'s housing project under construction in San Francisco, California. Lennar’s results were announced before U.S. markets opened. Close

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Photographer: David Paul Morris/Bloomberg

The silhouette of a contractor setting rebar is seen at a Lennar Corp.'s housing project under construction in San Francisco, California. Lennar’s results were announced before U.S. markets opened.

Lennar rose 6.3 percent to $37.43, the highest price since July. The stock lost 3.2 percent this year, compared with a 2.9 percent gain for the 11-company Standard & Poor’s Supercomposite Homebuilding Index.

Net income in the fourth quarter included a $94 million tax provision compared with an $18.5 million credit a year earlier.

Orders, Prices

Orders climbed 13 percent to 4,498 homes. Revenue rose to $1.92 billion from $1.35 billion a year earlier as the number of houses delivered increased 27 percent. The average sale price was $307,000, up 18 percent.

Rising mortgage rates, political uncertainty and price increases contributed to the slowdown in orders, Lennar Chief Executive Officer Stuart Miller said. In the fourth quarter of 2012, orders rose 32 percent from a year earlier.

“We’ve seen a pause in the rate of improvement,” Miller said on a conference call with analysts. “The housing market remains on track for a solid recovery and is likely to continue to improve over an extended period of time” as the supply of homes remains tight.

Mortgage Rates

Mortgage rates surged to a two-year high in August from near-record lows in May, causing some would-be buyers to hold back. Borrowing costs have retreated since then, with the 30-year average at 4.42 percent, down from 4.58 percent on Aug. 22, according to McLean, Virginia-based Freddie Mac.

U.S. new-home sales jumped 25 percent in October to an annual pace of 444,000, up from a rate of 354,000 in the previous month that was the weakest since April 2012, Commerce Department data show.

Toll Brothers Inc. (TOL), the largest U.S. luxury-home builder, said last week that the jump in interest rates was a reason for slower order growth in its fiscal fourth quarter, which ended Oct. 30. Contract signings were flat in the first five weeks of the Horsham, Pennsylvania-based company’s current fiscal year.

The pace of home construction reached a five-year high in November, jumping 22.7 percent to a 1.09 million annualized rate, the Commerce Department reported today. Confidence (USHBMIDX) among U.S. homebuilders increased more than forecast this month, matching the highest level in eight years, a National Association of Home Builders/Wells Fargo index showed yesterday.

Lennar, with a market value of about $6.7 billion, is the biggest U.S. homebuilder after Bloomfield Hills, Michigan-based Pultegroup Inc. (PHM)

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

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

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