Lennar Monster Charges, Yet EPS & Revenue Not As Bad As Some Forecasts (LEN)

Lennar Corporation (NYSE: LEN) has posted its results and the initial loss reported is huge at -$7.92 per share.  But the loss is from writedowns and charges of $7.50 per share (outlined below); so earnings per share from operations are being counted as -$0.42 EPS and fourth quarter revenues were down 49% to $2.2 Billion.  First Call had estimates pegged at -$1.65 EPS on $2.06 Billion in revenues.

The $7.50 per share charges related to valuation adjustments and other write-offs are as follows: pretax valuation adjustments and other write-offs: Morgan Stanley land transaction of $740.4 million; Land $229.7 million; Option deposits and pre-acquisition costs of $217.6 million; Homebuilding charge $224.8 million; Investments in unconsolidated entities of $277.3 million; Goodwill fell $173.7 million

Lennar also noted that deliveries of 7,044 homes were down 50% and its new orders of 4,761 homes was also down 50%.  Lennar’s cancellation rate was 33%, so 1 in 3 contracts are falling through.  The CEO of Lennar noted that while he hopes rate cuts will have a stabilizing impact, its operations continued a downward slide through the end of the fourth quarter.

The only good news in such wide losses that the company said these generated losses have resulted in the receipt of a cash tax refund of $852 million subsequent to the close of the quarter.  Stuart Miller, CEO, also addressed 2008’s expectations for another hard year:

• "As we look ahead to 2008, we are not expecting market conditions to improve, and perhaps might continue to decline in the near term. Nevertheless, the strength of our balance sheet, bolstered by the cash generated through our fourth quarter strategic moves, will keep us well positioned to weather these turbulent times. Additionally, our management focus on right-sizing our business, revising our product offering and reducing construction costs, together with our restated land positions that reflect current market conditions, will provide the springboard from which we will rebuild margins once the market does stabilize."

Weak markets, lower cost, revising products…. If you bought a new home from Lennar over the last couple of years, you aren’t going to be seeing any price appreciation quite yet.  The good news is that its operating numbers were just really bad rather than "far worse than really bad."

Jon C. Ogg
January 24, 2008