How Homebuilder Lennar Crushed Estimates

Lennar Corp. (NYSE: LEN) reported fiscal second-quarter 2018 results before markets opened Tuesday. The homebuilder posted quarterly diluted earnings per share (EPS) of $0.94 on total revenues of $5.46 billion. In the same period a year ago, Lennar reported EPS of $0.89 on revenue of $3.26 billion. Second-quarter results compare to consensus estimates for EPS of $0.45 and revenues of $5.11 billion.

Quarterly revenue from new home sales rose 74% compared with the second quarter of 2017 to $5 billion, primarily as a result of a 57% increase in the number of home deliveries, excluding unconsolidated entities, and an 11% increase in the average sales price of homes delivered. Lennar delivered 12,078 homes in the quarter, compared with 7,687 delivered in the same period a year ago. The increase is due primarily to the recently completed acquisition of homebuilder CalAtlantic.

Sales incentives increased from $22,700 a year ago to $23,000 in the second quarter of this year. The prior quarter’s average sales incentive was $22,300. As a percentage of the sales price, incentive costs fell from 5.7% per home in the year-ago quarter to 5.3%. The average sales price of homes delivered was $413,000 in the second quarter of 2018, compared to $374,000 in the second quarter of 2017.

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The company’s executive chair, Stuart Miller, said:

Concerns about rising interest rates and construction costs have been offset by low unemployment and increasing wages, combined with short supply based on years of underproduction of new homes. Demand remained strong as we continued to see pricing power support margins while affordability remained consistent.

CEO Rick Beckwitt added:

Our core homebuilding business had a strong second quarter with new orders and deliveries up 62% and 57%, respectively. Our homebuilding gross margin was 21.6% when adjusted to eliminate the effects of the write-up of CalAtlantic backlog and construction in progress in purchase accounting.

The company did not offer guidance in its announcement. Consensus estimates for the third quarter call for EPS of $1.27 and revenues of $5.61 billion. For the full fiscal year, analysts are looking for EPS of $4.92 and revenues of $20.29 billion. Based on today’s report these estimates are likely to rise.

Lennar’s shares traded up about 8% in Tuesday’s premarket session to $52.90, in a 52-week range of $48.69 to $72.17. The consensus 12-month price target on the stock is $74.82.

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