Lennar Corporation (NYSE: LEN and LEN.B), on Tuesday reported a profit of $235.8 million, or $1.01 per diluted share, for its fiscal third quarter ended August 31, compared to $223.3 million, or $0.96 per diluted share in the comparable quarter last year. Analysts were expecting a gain of $0.90 per share. Shares of Lennar were trading down despite the robust report as the street punished the home building sector for the decline in housing starts announced by the Commerce Department before market open.
Revenues from home sales increased 11% in the quarter to $2.4 billion, up from $2.2 billion in the third quarter of 2015. The company attributed the gain primarily to a 7% increase in the number of home deliveries, excluding unconsolidated entities, and a 3% increase in the average sales price of homes delivered.
New home deliveries, excluding unconsolidated entities, increased to 6,758 homes in the third quarter of 2016 from 6,314 homes in the third quarter of 2015. There was an increase in home deliveries in all of the company's home building segments and home building other, except in Houston. The decrease in home deliveries in Houston was primarily due to less demand in the higher priced communities driven by volatility in the energy sector.
The average sales price of homes delivered increased to $362,000 in the third quarter of 2016 from $350,000 in the third quarter of 2015. Sales incentives offered to home buyers were $22,500 per home delivered in the third quarter of 2016, or 5.9% as a percentage of home sales revenue, compared to $20,700 per home delivered in the third quarter of 2015, or 5.6% as a percentage of home sales revenue, and $21,800 per home delivered in the second quarter of 2016, or 5.7% as a percentage of home sales revenue.
Gross margins on home sales were $551.7 million, or 22.6%, in the third quarter of 2016, compared to $531.4 million, or 24.1%, in the third quarter of 2015. Gross margin percentage on home sales decreased compared to the third quarter of 2015 primarily due to an increase in land costs, partially offset by an increase in the average sales price of homes delivered.
Selling, general and administrative expenses were $228.1 million in the third quarter of 2016, compared to $219.0 million in the third quarter of 2015. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 9.3% in the third quarter of 2016, from 9.9% in the third quarter of 2015, due to improved operating leverage as a result of an increase in home deliveries and benefits from the Company's focus on digital marketing.
Equity in earnings (loss) from unconsolidated entities was ($18.0) million in the third quarter of 2016, compared to $13.3 million in the third quarter of 2015, primarily attributable to the company's share of costs associated with the FivePoint combination and the company's share of net operating losses associated with the new FivePoint unconsolidated entity.
Stuart Miller, Chief Executive Officer, said, "We are very pleased, once again to announce very solid quarterly results for our company, with third quarter earnings per share of $1.01. While the housing market's recovery has continued to progress on a slow, steady and sometimes, choppy path, we have continued to manage our sales and delivery targets in the 7% - 10% range, while focusing on bottom-line profitability and balance sheet strength.
He continued, "We have continued to focus our land spend on high quality, 'A' locations while also ramping up our first-time home buyer land positions as that segment of the market continues to improve. Meanwhile, our balance sheet continues to strengthen, positioning us well to seize unique, strategic opportunities as they present themselves."
Miller concluded, "Our homebuilding business and financial services operations continue to be the primary drivers of our quarterly results and earnings growth. Concurrently, our ancillary businesses of Rialto, Lennar Multifamily and FivePoint continue to mature and position our company for even stronger, long-term value creation."
Lennar at 3rd QTR, at a glance:
- Net earnings of $235.8 million, or $1.01 per diluted share, compared to net earnings of $223.3 million, or $0.96 per diluted share
- Deliveries of 6,779 homes – up 7%
- New orders of 7,018 homes – up 8%; new orders dollar value of $2.6 billion – up 10%
- Backlog of 9,253 homes – up 12%; backlog dollar value of $3.4 billion – up 14%
- Revenues of $2.8 billion – up 14%
- Lennar Homebuilding operating earnings of $344.9 million, compared to $333.7 million – up 3%
- Gross margin on home sales of 22.6%, compared to 24.1%
- S,G&A expenses as a % of revenues from home sales improved to 9.3% from 9.9%
- Operating margin on home sales of 13.2%, compared to 14.1%
- Lennar Financial Services operating earnings of $53.2 million, compared to $39.4 million
- Rialto operating earnings (net of non-controlling interests) of $5.9 million, compared to $9.0 million
- Lennar Multifamily operating earnings of $2.6 million, compared to an operating loss of $3.0 million
- Lennar Homebuilding cash and cash equivalents of $568 million
- $125 million outstanding under the credit facility and increased maximum borrowings to $1.8 billion
- Lennar Homebuilding debt to total capital, net of cash and cash equivalents, of 39.9%