Lennar Corp., Miami (NYSE:LEN) early Thursday reported a net profit of$13.8 million, or $0.07 per diluted share, for its fiscal second quarter ended May 31. The results compare to a profit of $39.7 million, or $0.21 per diluted share, in the comparable quarter of 2010, which included an $11 million tax benefit. Wall Street was expecting a profit of 4 cents a share.

Revenues fell 6% from last year's quarter to $764.5 million, up 37% from the company's first fiscal quarter, as deliveries declined 8% from last year's quarter to 2,682 homes. Deliveries, however, were up 39% from this year's first quarter.

The average selling price of closed homes rose to $245,000 from $240,000 in the same period last year, but incentives rose to $33,900 per home, or 12.1% as a percentage of home sales revenue, from $31,100 per home, or 11.5% as a percentage of home sales revenue, in the same period last year.

New orders were flat with last year at 3,204 homes but up 41% from the prior quarter. The company said orders were up more than 30% in May after having fallen approximately 11% in the prior two months. The cancellation rate was 17%, flat with last year's second quarter and this year's first quarter.

Backlog at quarter's end was up 1% from last year's quarter to 2,470 homes, an increase of 27% from this year's first quarter. Backlog value was down 3.3% from last year's quarter to $633.7 million.

Gross margin on home sales was 19.4%, down from 20% in the first quarter and 20.6% in the prior-year quarter. SG&A in dollars was up marginally to$96.9 million and up from 13.9% in last year's quarter to 14.9% this year.SG&A was down 150 basis points from the first quarter. Corporate G&A was flat with last year at 2.7% of revenues.

Lennar reported a profit of $2.4 million from unconsolidated operations compared to a loss of $1.4 million in last year's quarter.

The Rialto Investments segment posted operating earnings $9.8 million, not including $12.9 million in net earnings from noncontrolling interests, compared to operating earnings $5.1 million, not including $9.6 million of net earnings attributable to noncontrolling interests in the same period last year. Revenues were $42.6 million, which consisted primarily of interest income from Rialto's portfolio of real estate loans, compared to revenues of $34.6 million in the same period last year.

The company did not report community or lot counts.

Lennar ended the quarter with cash and cash equivalents of $945.2 million and a net debt-to-capital ratio of 44.9%, up from 42.2% at the close of last year's quarter.

"Despite operating in a challenging housing market that saw very little evidence of a spring selling season, we were still able to achieve strong results, making this our fifth consecutive quarter of profitability," said Stuart Miller, Lennar CEO in the earnings release. "Our new orders during the quarter were flat with last year notwithstanding the elevated level of sales in March and April of the prior year due to the federal homebuyer tax credit."

Analysts were mostly positive, and shares of Lennar opened up more than 1% in early trading on the NYSE as the overall market tanked on worse-than-expected data on initial jobless claims, which rose 9,000 to 429,000 last week.

Michael Rehaut at J.P. Morgan was positive. "Overall, we believe the company continued to demonstrate solid results, featuring orders modestly above our estimate ... gross margins roughly in-line with our estimate ... and Rialto net earnings modestly below our estimate, at $9.8 million versus our $13.0 million estimate," he wrote in a note to investors.

In his reserach note, David Goldberg at UBS said, "We are impressed that [management] is still confident in its ability to be profitable this [year] given the challenging environment." But he also said, "Profitability was weaker than estimated this quarter, as the level of incentives offered per home rose. This, combined with a smaller than expected contribution from Rialto offset the more positive EPS trends."

Adam Rudiger at Wells Fargo wrote, "With orders and closings better than expected, this was a relatively good quarter for LEN's homebuilding operations. However, gross margin saw some modest pressure (although because LEN did not disclose whether or not any impairments were taken during the quarter, we do not know if these are apples-to-apples comparisons) as incentives/sales price increased by 60bps yr/yr." He continued, "We were also somewhat surprised to see less operating leverage at the SG&A line as home sales revenue increased by 42% sequentially and SG&A increased by approximately 30%. ... Within the Rialto segment, 68% of earnings (before minority interest) came from gains associated with real estate owned, which we view as low quality earnings.