Lennar grew deliveries, new orders, and starts on a year-over-year basis in the company’s fiscal third quarter.
Strong employment, short housing supply, and solid demand contributed to positive results in the quarter. Executive chairman and co-CEO Stuart Miller said Lennar remains optimistic about the state of the housing market in the near future.
“While strong demand, enabled by incentives and mortgage rate buydowns, has driven the new-home market over the past two years, we fully expect an even stronger and more broad-based demand cycle as rates move lower,” Miller said during the home builder’s earnings call. “While there will be seasonality, incentives, and perhaps some adjustments along the way, we are very optimistic that the road ahead appears very positive for our home building business.”
Miller said the decision by the Fed to lower interest rates should translate in improved affordability, activating pent up demand for both new and existing homes. He said that as activity and listings increase in the resale market, the new-home market stands to benefit with improved demand from move-up buyers.
In the fiscal third quarter, ended Aug. 31, Lennar delivered revenues from home sales of $9.0, a 9% increase on a year-over-year basis. Home deliveries increased 16% year-over-year to 21,516, new orders increased 5% to 20,587 homes, and starts increased 8% to approximately 20,250. The average sales price of homes delivered decreased by 6% to $422,000, primarily due to pricing to market through an increased use of incentives and product mix, according to Lennar.
“Operationally, our starts pace and sales pace were 5.4 homes and 5.5 homes per community in the third quarter, respectively, as we continue to move closer to an even flow operating model,” Jon Jaffe, co-CEO and president of Lennar, said. “Our cycle time was down to 140 days, or 23% lower year-over-year, as our production first focus has positively impacted our production times, while our inventory turn improved to 1.6 times, reflecting broader efficiencies.”
During the quarter, Lennar continued its five-year migration from an asset-heavy operating model to a land-light, asset-light, just-in-time finished home site delivery model, according to Miller. Since beginning the transformation in 2020, Lennar has generated significant improvements in years supply of land, controlled home site percentage, and deliveries.
“Since 2020, we have reduced our years supply of land owned from 3 years to an expected 1.1 years at the end of the year. We have increased our controlled home sites from 43% to [an expected] 81% controlled at the end of the year,” Miller said during the earnings call. “Our deliveries have [improved by] 53% while total owned inventory has remained flat. We re clearly doing a lot more with a lot less, as our return on inventory has grown from 16% to a forecast 30+% at year-end this year.”
In the quarter, Lennar bested analyst projects, reporting a quarterly profits per share of $3.90, nearly $0.30 per share above expectations. Quarterly profit increased to $1.2 billion from $1.1 billion in the same quarter a year ago.
“We continue to remain enthusiastic about our current execution and our future,” Miller said. “We have remained focused on our operating strategies, while at the same time being observant of our current economic and market trends.”
