Lennar’s Earnings More Than Quadruple on New-Home Demand
Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, said its quarterly profit more than quadrupled as demand for new houses climbed and a real estate recovery gained traction.
Net income for the third quarter ended Aug. 31 rose to $87.1 million, or 40 cents a share, from $20.7 million, or 11 cents, a year earlier, the Miami-based company said today in a statement. The average estimate of 19 analysts in a Bloomberg survey was for earnings of 28 cents a share.
Purchases of new homes in the U.S. have begun to rebound as low mortgage rates help lure buyers amid a tight supply of existing properties. Builders broke ground on new single-family homes at an annual pace of 535,000 in August, the highest rate since April 2010, when buyers rushed to take advantage of federal tax credits designed to stimulate the market, the Commerce Department reported Sept. 19.
“The homebuilding business is beginning to revert to normal and that’s positive for the U.S. economy in general, which is in turn good for a sustained recovery in the housing market,” Lennar Chief Executive Officer Stuart Miller said on a conference call today. “Overall demand has been improving and we’ve seen a consistent sales pace at improving prices.”
The shares fell 1.5 percent to $36.96 at the close in New York. The Standard & Poor’s Supercomposite Homebuilding Index of 11 companies dropped 1.3 percent as global stocks sank on concern that a global economic slowdown may deepen.
The index is up 84 percent this year and reached its highest level since 2007 last week. Lennar has gained 88 percent this year while PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, has jumped 166 percent to lead gains in the industry.
Lennar’s shares are priced at a multiple of two times book value, comparable to a time when the housing market was stronger, Will Randow, an analyst with Citigroup Inc. in New York, said in a note today.
The “math still doesn’t work,” wrote Randow, who expected earnings of 31 cents. He has a “3” rating on Lennar, the equivalent of a sell recommendation. The shares “need much more upside to justify even more robust valuation.”
Lennar’s third-quarter revenue rose to $1.1 billion from $820.2 million a year earlier. New orders climbed 44 percent to 4,198 homes. Contract backlog, an indication of future sales, increased 79 percent to 4,513 homes. The average sales price of homes delivered jumped to $258,000 from $247,000 a year earlier.
Lennar’s gross margin on home sales, a measure of profitability, rose 2.1 percentage points to 23.2 percent on higher selling prices and lower incentives to buyers, even as costs for materials and labor increased.
Pockets of California, Florida and the eastern seaboard were among markets that showed strength as more move-up buyers bought homes and as some consumers with damaged credit from foreclosures came “out of the penalty box,” Miller said.
“The lower end” remains “a little bit more constrained,” he said. “But there is a recovery going on in a broad-based play across the country. It’s just very pocketed and very locally focused.”
Other builders have been recording improved results as housing recovers. KB Home (KBH), based in Los Angeles, on Sept. 21 reported an unexpected profit for its fiscal third quarter as home sales increased, buoyed by growth in the West Coast. The shares surged 16 percent, the most since 2008.
U.S purchases of new houses rose to a two-year high in August, according to economists surveyed by Bloomberg. The Commerce Department probably will report this week that sales climbed to a 380,000 annual pace from a 372,000 rate in July, based on the median of 60 estimates.
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