The first quarter 2008 numbers for Lennar Corp. show just how much the housing market has slowed. Revenue fell 62 percent, to $1.1 billion, at the Miami-based builder for the quarter ended Feb. 29, 2008. New orders and deliveries both nosedived, by 57 percent and 60 percent, respectively. Net loss for the quarter totaled $88.2 million, or 56 cents per share.
And, during Thursday’s conference call, Lennar’s leadership both acknowledged the reality of a weakened housing market and reassured analysts and investors regarding Lennar’s strategy for the future.
“We’ve done the heavy lifting on impairments and are now situated with stated assets that can and will produce improving markets when the rate of decline in market pricing subsides. We believe that even with a continued degradation of market conditions, our stated asset base will not suffer nearly the level of impairments we have seen to date,” said Stuart Miller, Lennar’s president and CEO.
The call and earnings release did reveal a few bright spots for the company. Its balance sheet has been “fortified” to the nature of $1 billion in cash, it has nothing borrowed on its revolving line of credit, and it has reduced its ratio of net home building debt to total capital. “This is meaningful progress,” Miller said. Lennar’s home sales margins also improved slightly, to 14.3 percent, including write-downs.
Still, the path to progress remains uphill. Sales prices for new and existing homes have been sinking across the country, and Lennar is no exception. Its average sales price for a new home dropped to $278,000 in the first quarter compared to $303,000 during the same period last year.
However, Lennar’s leadership asserted in the call that the company was responding well to the deteriorating market and was positioning itself appropriately for the future through a number of financial decisions. “This is exactly what we have prepared for and why we have taken the steps we have taken,” Miller said.
Those steps have included reducing its exposure by shoring up its balance sheet with cash, restructuring its numerous joint venture deals, and tightly controlling overhead. Overall, Lennar has sliced its workforce to 6,200 associates, a significant reduction from its peak of 14,100 employees.
Lennar also has sharply reduced its joint ventures, cutting them from 270 such arrangements in 2006 to 180 JVs at the end of 2008’s first quarter, according to Bruce E. Gross, Lennar’s chief financial officer. Troubled ones are being reworked.
The company has been looking closely not only at its JVs, but all of its assets. As a result of this division-by-division review, the builder announced a number of write-downs for the first quarter. Those included $49 million in charges against JVs, $26 million on home building, and $26.9 million on land, which included a valuation adjustment of $15 million on the sites as well as $16.9 million in write-offs on deposits and pre-acquisition expenses on land that Lennar ultimately decided not to buy.
Learn more about markets featured in this article: Miami, FL.
