Lennar Corporation (NYSE: LEN and LEN.B), Miami, on Tuesday blew past the consensus analyst estimate of a profit of $0.87 per share with a report of a $0.95 per-share profit of earnings of $218.5 million, a rise of 10% in new orders and a 12% jump in deliveries for the second quarter ended May 31. The gain compares with to 2015 second quarter net earnings of $183.0 million, or $0.79 per diluted share and was the best second-quarter earnings report since the pre-crash days of 2006, according to Stuart Miller, Lennar CEO.
Here are the highlights:
- Deliveries of 6,724 homes – up 12%
- New orders of 7,962 homes – up 10%; new orders dollar value of $2.9 billion – up 11%
- Backlog of 9,014 homes – up 12%; backlog dollar value of $3.3 billion – up 15%
- Revenues of $2.7 billion – up 15%
- Lennar Home building operating earnings of $342.7 million, compared to $292.8 million – up 17%
- Gross margin on home sales of 23.1%, compared to 23.8% in Q2 2015, improved sequentially 40 basis points from Q1 2016
- S,G&A expenses as a % of revenues from home sales improved to 9.3% from 10.0% in Q2 2015, improved sequentially 150 basis points from Q1 2016
- Operating margin on home sales improved to 13.9% from 13.8% in Q2 2015, improved sequentially 200 basis points from Q1 2016
- Lennar Financial Services operating earnings of $44.1 million, compared to $39.1 million
- Rialto operating loss (net of noncontrolling interests) of $13.8 million, compared to operating earnings (net of noncontrolling interests) of $7.6 million
- Lennar Multifamily operating earnings of $14.9 million, compared to an operating loss of $8.7 million
- Lennar Homebuilding cash and cash equivalents of $601 million
- Lennar Homebuilding debt to total capital, net of cash and cash equivalents, of 43.5%
Comments from CEO Miller:
"The home building market continued its slow and steady recovery sustained by low interest rates, modest wage growth, positive consumer confidence and low unemployment levels combined with tight inventory levels.
"As this year's spring selling season improved over last year, our second quarter new orders increased 10% to 7,962 homes year-over-year, while our home deliveries and home sales revenue also increased to 6,724 homes and $2.4 billion, respectively. As the recovery has continued to mature, we have remained focused on our strategy of moderating our growth rate in community count and home sales, as well as on our soft-pivot land strategy, targeting land acquisitions with a shorter average life.
"Our core home building business continued to produce strong operating results in the second quarter of 2016 as our operating margin was 13.9%, a 10 basis point improvement from last year, notwithstanding a lower gross margin in the quarter, as expected. Our home building divisions continued to benefit from their focus on migrating from traditional to digital marketing, which helped to reduce S,G&A as a percentage of home sales revenues to 9.3%, the lowest second quarter percentage in our history. As we continue our strategy of infusing and reinvigorating technologies throughout various aspects of our business, we look forward to additional opportunities that lie ahead."
Mr. Miller continued, "Alongside our home building business, our Financial Services operations reported strong earnings of $44.1 million in our second quarter, up 13% from the same period last year, primarily due to higher profit per transaction in its mortgage and title operations.
"For the third consecutive quarter, our Multifamily business generated positive operating earnings. During the second quarter, earnings were $14.9 million primarily due to the sale of an apartment property by one of its joint ventures and a third-party land sale. In addition, subsequent to quarter end, the Lennar Multifamily Venture received an additional $550 million of equity commitments, increasing its total equity commitments to approximately $2.0 billion.
"Rialto has continued to grow despite the combination of turmoil in the CMBS markets earlier in the year and a write-off relating to a single asset in one of our early bank portfolios. During the second quarter, our investment management platform increased assets under management and profitability, while our mortgage finance business continues to be a market leader in securitization margins and has seen an increase in its origination volumes, which improved sequentially from the first quarter.
"Finally, during the second quarter of 2016, we contributed our investment in three strategic joint ventures previously managed by FivePoint Communities in exchange for an investment in a newly formed FivePoint entity. This transaction marked the next step in FivePoint's strategic evolution as a leader in the management and development of large master-planned communities."