Lennar Clears Lowered Bar, CEO Pats Himself on the Back

At the end of the second quarter, the consensus estimates called for EPS of $0.77 on total revenues of $2.2 billion.

Revenue from new home sales rose 25%, compared to the third quarter of 2013 to $1.8 billion, primarily as a result of a 10% increase in the number of deliveries and a 14% increase in the average price. Lennar delivered 5,450 homes in the third quarter, well above the 4,972 delivered in 2013. Sales incentives rose from $18,700 a year ago to $20,400 in the third quarter of this year. In the second quarter of 2014, the average sales incentive was nearly $20,300. As a percentage of the sales price, incentives fell slightly from 6% in the third quarter of 2013 to 5.8% this year.

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The company’s CEO said:

The housing market in general has continued its slow and steady recovery. This recovery has been driven by years of production deficit that has limited supply while demand has come back to the market. Concurrently, the market has been constrained by reduced access to credit available to many potential purchasers. The recovery has traveled in a fairly narrow channel driven by a need for production and limited by credit availability. … Our core homebuilding business is hitting on all cylinders as we have properly considered and understood the uniqueness of this recovery.

The company offered no guidance, but reported that its backlog of new homes at the end of the third quarter totaled 7,290, up 22% from the same period a year ago. The backlog’s dollar value totals $2.48 billion, up 29% from the same period a year ago. The consensus estimates for the fourth quarter call for EPS of $0.95 on revenues of $2.53 billion. For the full year, analysts forecast EPS of $2.57 on revenues of $7.66 billion.

Lennar also reported the first two sales of its multifamily properties. Operating profit from the sales totaled $8.5 million, or a margin of about 60% based on $14.04 million in revenue. The company said it has a pipeline of multifamily projects valued at $5 billion and that these projects will become a more predictable source of quarterly earnings beginning late in 2015 and in 2016.

Shares were up about 4.3% in premarket trading, at $40.80 in a 52-week range of $32.15 to $44.40. Thomson Reuters had a consensus analyst price target of $44.25 before the results were announced.

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