"The outperformance was driven by better than forecast home building revenue growth of 30% YOY (+20% in units and 8% in ASP) compared to our expectation of 14% (+12% in units and 2% in ASP), adding $0.10 to results," UBS' Susan Maklari wrote. "Despite the increased revenue, the home building EBIT margin (including amortized interest) was in line with our 14% estimate. The sequential decline experienced this quarter was anticipated and we continue to expect sequential improvement through the back half of the year."
Another other highlight from the second biggest builder in the land:
- Deliveries of 6,015 homes – up 21%
- New orders of 7,271 homes – up 18%; new orders dollar value of $2.6 billion – up 28%
- Backlog of 8,073 homes – up 18%; backlog dollar value of $2.9 billion – up 23%
- Revenues of $2.4 billion – up 32%
- Lennar home building operating earnings of $292.8 million, compared to $234.5 million – up 25%:
Order growth was solid in all regions with the exception of Houston. "In F2Q, unit orders (ex JVs) were +17% YOY versus our +15% forecast," Maklari wrote. "This was led by gains in the West (+34% YOY) and East (+19%) as all regions with the exception of Houston (-9% YOY) increased. Our recent channel checks suggest that while demand in Houston hasn't seen a significant impact from the decline in oil prices, the recent severe rainfall is delaying land development and construction."
Lennar's gross margins of 23.8% beat its own projection, as did its SG&A expenses as a percentage of revenues from home sales of 10.0% and 13.8% operating margin on home sales of 13.8%. Its average sales price hit $348,000, the highest in its history. And, Lennar Financial Services posted operating earnings of $39.1 million, compared to $18.3 million last year.
"The home building market continued its steady improvement throughout our second quarter," said Stuart Miller, Lennar's CEO in a press release. "Driven by higher wages and employment, reasonable affordability levels, supply shortages, and favorable monthly payment comparisons to rentals, the home building market is well positioned for multi-year growth ahead."
Lennar has a also made a sizeable bet on the rental sector. Lennar Multifamily operating loss of $8.7 million, compared to $7.2 million. Still Maklari thinks the builder is well positioned.
"We continue to believe Lennar is among the best positioned builders, given management's: acumen at working through complex transactions; efforts to effectively cut costs and simplify the business, and pursuit of investments outside the core home building operations," she wrote.
J.P. Morgan's Michael Rehaut agrees. "We reiterate our relative Overweight rating as we expect LEN to outperform its peers based on our outlook for above average order growth, above average margins and our estimated value for the company's three main ancillary businesses," he wrote.