The second-quarter earnings report from Lennar Corp. (NYSE:LEN), released Thursday morning, provided fresh evidence that while sales and traffic picked up during the spring selling season, the home building industry still faces significant hurdles.

Lennar posted a loss of $125.2 million (-$0.76 per share) for the quarter ended May 31, a slightly bigger loss than last year's second-quarter shortfall of $120.9 million. The loss included $99 million in impairments and write-downs, $57 million from joint ventures. The charges were down from$137 million for the comparable quarter last year. Of the 76 cent-per-share loss, $0.38 was related to valuation adjustments and other write-offs and $0.27 was related to a non-cash deferred tax asset valuation allowance. Minus the tax asset valuation allowance, the loss was -$0.49 per share, ahead of the Wall Street consensus estimate of a loss of 63 cents.

"During the second quarter, the housing market experienced an uptick in sales of new homes, compared to the first quarter, as more confident homebuyers took advantage of increased affordability," said Stuart Miller, president and CEO, in a statement. He added, however, "While we are sensing pent-up demand in the market, rising unemployment, increased foreclosures and tighter credit standards continue to present challenges for the industry to generate sales at a more robust pace and at stabilized pricing. This combined with a recent spike in mortgage rates has made it difficult to predict when the market will ultimately turn the corner."

Revenues overall were 21% to $891.9 million. Revenues from home sales decreased 23% to $788.6 million, resulting mostly from a 16% decrease in the number of home deliveries to 3,138, excluding unconsolidated entities, and an 8% decrease in the average sales price to $251,000. Sales incentives averaged $52,600 per home, up from $48,700 per home delivered in the same period last year. Including joint ventures, deliveries were down 18% from last year's second quarter to 18% to 3,149 homes but up 47% from the first quarter of 2009.

Gross margins on home sales were $76.1 million, or 9.6%. Selling, general and administrative expenses were cut by 28%, or $44.4 million, due to staff reductions and declines in selling expenses and fixed costs. As a percentage of revenues from home sales, SG&A improved to 14.3% from 15.4% in second quarter, 2008.

New orders, including joint ventures, were down 19% from the same time last year to 3,564 homes but up 63% from this year's first quarter. Excluding JVs, orders totaled 3,541. The cancellation rate for the quarter was 15%, down from 22% in last year's second quarter and 21% in this year's first.

Backlog at quarter's end, including JVs, was 2,062 homes (2,031 minus JVs), down 48% from the comparable quarter last year but up 25% from first quarter, 2009. Dollar value of homes in backlog was down 56.5% to $545,735.

Lennar ended the quarter with home building cash of $1.4 billion and no outstanding borrowings under its credit facility. During the quarter, it retired $281 million of 7 5/8% senior notes due in March 2009, issued $400 million of 12.25% senior notes due 2017, and issued 12.8 million shares for$126.3 million under an equity draw-down program. Under that program, the company is authorized to sell up to a total of $275 million in new stock.

Lennar's homebuilding debt to total capital ratio was 51.8%, up from 39.5% at the same time last year. The ratio, net of homebuilding cash, was 32.9%, up from 28.7% at the end of last year's second fiscal quarter. The company also cut its exposure to joint-venture debt by $51.6 million and now says its maximum recourse indebtedness totals $422.4 million.

Another bright spot in the earnings report was financial services, which generated operating earnings of $16.5 million compared to an operating loss of $3.0 million in the same period last year. The company attributed to turnaround to improved consumer confidence and lower interest rates.

UBS home building analyst David Goldberg called the report a "solid performance" in a research note, but he questioned whether the company could maintain the momentum. "We remain cautious given our view that housing will slow in second half, 2009." He maintained his previous price target of $9 a share.

Lennar shares closed up strongly--more than 17%--to $9.19 in extemely heavy trading Thursday on the NYSE amid a broad market rally shared by the entire builder group.