Lennar Corp., Miami (NYSE:LEN) early Monday reported a net profit of $20.7 million, $0.11 per diluted share, for its fiscal third quarter ended August 31. The results, which included a mark-to-market charge to the company's Rialto land unit of $10.1 million, compared to earnings of $30.0 million,$0.16 per diluted share, in Q3 2010. The profit matched analyst estimates.

Revenues fell 1% to $820.2 million as closings dropped 3% to 2,865 homes, partly offset by a 2.9% rise in the average selling price to $247,000 from $240,000 in the same period last year. Sales incentives were $33,600 per home delivered, 12.0% of home sales revenue, compared to $33,900 in the second quarter of 2011, 12.1% of home sales revenue and $30,600 in the third quarter of 2010, 11.3% of home sales revenue.

New orders rose 11% to 2,914 homes. The cancellation rate was 20%, up from 17% in the prior quarter and 18% year-over-year. New-order dollars were up 15.2% from last year's quarter to $731.3 million.

Backlog was up 16% from last year's quarter to 2,519 homes; backlog value rose to $642.8 million from $569.3 million.

Gross margin on home sales was 21.1%, up 170 basis points from the second quarter and roughly flat with the comparable quarter last year. SG&A improved 240 basis points from the previous quarter to 14.3%, a 40-basis-point improvement from last year's fiscal third quarter.

Rialto Investments operating earnings totaled $5.7 million, not included$6.1 million attributable to noncontrolling interests, down from $7.7 million and $10.8 million, respectively, in last year's quarter.

Lennar Financial Services reported operating earnings of $8.0 million, up from $6.8 million in last year's quarter.

Lennar JVs lost $4.6 million in the quarter, compared to earnings of $1.0 million in the third quarter of 2010.

The company ended the quarter with cash and cash equivalents of $800.3 million, down from $945 million at the end of the prior quarter. Total debt was listed at $3.1 billion. The net debt-to-captial ration frose 180 basis points from the prior quarter and 410 basis points from last year's quarter to 46.6%.

Stuart Miller, Lennar CEO, said in a statement he was encouraged by the rise in new orders. "We have seen demand for home purchases slowly return to the marketplace, driven by low home prices and all-time low interest rates," he said. But he added, "Limiting that demand is tight and tightening lending standards, high unemployment and low overall consumer confidence, which continue to weigh heavily on the purchase of new homes."

Regarding the company's land unit, Miller said, "Our Rialto segment continued to be profitable generating $5.7 million of profit this quarter, despite taking a $10.1 million mark-to-market charge in our PPIP [the Federal government's Public-Private Investment Program] investment. We have successfully completed closings of approximately $600 million of equity commitments for our Rialto Real Estate Fund which will provide capital to help our Rialto segment continue to grow."

Miller said the company expects to remain profitable for the fourth fiscal quarter of 2011.

Michael Rehaut, home-building analyst at J.P. Morgan, wrote in a research note, "While orders were below our estimate, we note that not only were they roughly in-line with the Street's outlook for 11% growth, but also, in contrast to the last several quarterly releases, we believe LEN's tone describing demand has improved..."

In his note to investors, Adam Rudiger at Wells Fargo wrote, "Positively, LEN's homebuilding operations continue to deliver above average results, with a 4.8% core homebuilding operating margin this quarter and management guided to a profitable Q4 as well. LEN commented, however, that mortgage lending standards continue to tighten, which we expect will remain a headwind for the industry into 2012."

David Goldberg at UBS also was positive on the results. "We continue to be impressed with management's operating acumen, which is helping the company to remain profitable despite the challenging macro backdrop." He also singled out the land unit. "We believe that Rialto offers a unique competitive advantage for Lennar, as it should boost profitability as housing activity remains at low levels."

Stephen East at Ticonderoga Securities saw better news for the housing market in his note. He wrote, "Overall, the results were as expected, but LEN turned in surprisingly good home building results that should put a little bounce in investors' steps. We have been concerned by the migration in earnings mix over the last few quarters--to the extent of moving to the sidelines after a long stint buying the equity. However this quarter flipped that dynamic on its head, potentially paving the way for equity valuation expansion. Homebuilding is not out of the woods yet, but at least we can see the road from here."