Lennar Corp.'s February-end first quarter results did little to bolster hope that a spring selling season had emerged. In fact, the company logged a 28% drop in new orders from a year ago.
March sales numbers are better, CEO Stuart Miller told investors Tuesday morning; however, "I do not feel like they are defining a trend yet," he said. Rather, he suggested, any bump in demand is purely a seasonal aberration and some of it is related to investors buying distressed properties from banks.
"We are not projecting a material improvement for some time to come," said Miller. Still, there are some tiny signs that maybe the bottom could be near, he conceded.
"One can sense that resolution is not too far off," he said. "The home building market will rebound. It will have to rebound in order to bring the rest of the market to its feet."
In the meantime, Lennar has a sizeable stock of existing unsold homes it needs to sell. Its spec count totaled 1,321 at the end of February, compared with 1,140 at the end of November.
"We are intensely focused on aggressively reducing this number," said CFO Bruce Gross. Over the weekend the company implemented a national program offering 3.625% fixed-rate mortgages to buyers of these homes.
Also on Tuesday morning Lennar management filed a document with the Securities and Exchange Commission that more completely outlines its financial agreements with its joint venture partners. Analysts frequently have penalized the company for its lack of transparency when it comes to risks related to its joint ventures with developers, other builders and investors.
Since 2006, Lennar has reduced the number of its joint ventures as well as the amount of recourse debt it has in the entities. At the end of February, it had 95 joint ventures, down from 270 in 2006 and 115 in the last quarter of 2008. The amount of recourse debt also was decreased to $474 million from $1.3 billion in 2006.
The document also had some interesting details related to LandSource, the land holding company it sold off most of its interest in two years ago that is now in bankruptcy.
The SEC filing shows LandSource's assets valued at $1.7 billion, its debt at $1.4 billion and its debt-to-capital ratio at 103%. None of that debt is recourse to Lennar.
As part of a proposed LandSource reorganization plan, Lennar would reinvest in the entity, investing $140 million in return for 15% of the reorganized company and outright ownership of a number of projects in the company.
"We are happy to see that LandSource is working through its bankruptcy," said Miller. "We have always believed in the strategic value of LandSource."
Miller emphasized that Lennar is working to divest itself of land holdings, putting them into separate companies allowing it to make itself a more of a pure manufacturer of homes.
It has formed a team to seek capital from private investors to take advantage of the market downturn, to buy land cheaply that would be held off its balance sheet until it needs it for home construction in the future.
Company officials also detailed some moves it has been making to streamline operations and redesign homes to be smaller and less expensive.
It has shrunk from 10 operating regions with 124 home building and land divisions to four operating regions with 29 home building divisions, reducing SG&A by $500 million a year compared to 2006.
After three years of work, Lennar has been able to separate the costs of labor from the costs of materials to help negotiate better materials contracts.
"We have unbundled basically to the point where we know what it costs for a case of nails," said Miller. As a result, costs have been cut significantly. The company is paying 10% to 15% less for its windows and 25% less for granite, for example.
Other cost reductions have come from paring down the number of floor plans by 29% from a peak of more than 3,000. The company kept the most efficient and highest grossing plans in its stable.
The price per square foot has fallen by 11% in a year and square footage size is down 12%.