Lennar Q2 Earnings & Revenues Beat Estimates, Orders Up

Lennar Corporation LEN reported second-quarter fiscal 2024 results, wherein its earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, both the top and bottom lines increased, given the company's emphasis on maintaining a steady production rate to drive sales momentum. Lennar strategically utilized pricing, incentives, marketing expenditure and dynamic pricing insights to ensure steady sales volume despite fluctuations in interest rates.
However, the company's shares plunged 2.6% in the after-hours trading session on Jun 17. Investors' sentiments might have been hurt by lower gross margin expectations and higher selling, general and administrative (SG&A) guidance for the third quarter of fiscal 2024.

Quarterly Numbers

LEN reported quarterly earnings per share of $3.38, which surpassed the Zacks Consensus Estimate of $3.20 by 5.6%. The metric increased 15% year over year.
Revenues of $8.8 billion topped the consensus mark of $8.6 billion by 2.2% and rose 9% year over year from $8.1 billion.

Lennar Corporation Price, Consensus and EPS Surprise

Lennar Corporation price-consensus-eps-surprise-chart | Lennar Corporation Quote

Segment Details

Homebuilding: Revenues in the segment totaled $8.38 billion (which came ahead of our expectation of $8.2 billion), up 9.3% from the prior-year quarter. Under the Homebuilding umbrella, home sales contributed $8.36 billion to total revenues, up 9.4% from a year ago.
Land sales accounted for $13.6 million, down from $16.3 million in the prior-year quarter. The Other homebuilding unit contributed $9.7 million to homebuilding revenues, down from $17.1 million a year ago.
Home deliveries in the reported quarter improved 15% from the year-ago level to 19,690 units. The reported figure was better than our projection of 19,200 units for the quarter. The average sales price of homes delivered was $426,000, down 5% from the year-ago figure due to pricing to market through an increased use of incentives and product mix. Our model had predicted ASP to be $423,190 for the fiscal second quarter.
New orders rose 19% from the year-ago quarter to 21,293 homes. The potential value of net orders also increased 12.5% year over year to $9.2 billion.
Backlog at the fiscal second-quarter end declined 11.6% from a year ago to 17,873 homes. Potential housing revenues from backlog decreased 13.6% year over year to $8.2 billion.
The gross margin on home sales was 22.6% for the quarter, up 10 basis points (bps) year over year. Notably, the reported figure came above our projection of 22.5% for the quarter. The upside was due to a consistent focus on reducing construction costs.
SG&A expenses — as a percentage of home sales — rose 80 bps to 7.5% due to an increase in the use of brokers resulting from current market conditions and an uptick in digital marketing and professional expenses and insurance costs.
Financial Services: The segment's revenues increased year over year to $281.7 million from $223 million for the reported quarter. Operating earnings for the quarter increased to $147 million from $112.6 million a year ago.
Lennar Multi-Family: Revenues of $99.5 million in the segment were down from $151.7 million in the prior-year quarter. The segment registered an operating loss of $20.5 million for the quarter, wider than the year-ago loss of $8.2 million.
Lennar Other: The segment's revenues totaled $3.3 million, down from $0.4 million a year ago. Its operating loss was $29 million for the quarter compared with $18.4 million in the comparable period of fiscal 2023.

Financials

At the fiscal second-quarter end, Lennar had homebuilding cash and cash equivalents of $3.6 billion, down from $6.27 billion at the end of fiscal 2023. LEN has no outstanding borrowings under the $2.2 billion revolving credit facility, thereby providing $5.8 billion of liquidity.
The total homebuilding debt was $2.24 billion as of the fiscal second-quarter end, down from $2.82 billion at the fiscal 2023-end. Homebuilding debt to capital at the fiscal second-quarter end was 7.7%, down from 9.6% at the fiscal 2023-end.
LEN repurchased 3.8 million shares for $603 million in the fiscal second quarter.

Guidance

For third-quarter fiscal 2024, the company expects deliveries within 20,500-21,000 homes, depicting an increase from 18,559 homes delivered in the year-ago period. The company expects the ASP of the delivered units within $420,000-$425,000, down from an ASP of $448,000 reported a year ago.
The gross margin on home sales is expected to be about 23%. SG&A expenses, as a percentage of home sales, are likely to be in the range of 7.3%-7.5% for the quarter. In the prior year, gross margin was 24.4%, and SG&A was 7%.
New orders are likely to be within 20,500-21,000 units, up from 19,666 homes reported a year ago.
Financial Services operating earnings are expected to be in the range of $135-$140 million in the fiscal third quarter.

Zacks Rank & Stocks to Consider

Lennar currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Construction sector are:
Howmet Aerospace Inc. HWM presently carries a Zacks Rank #2 (Buy). HWM has a trailing four-quarter earnings surprise of 8.5%, on average.
The Zacks Consensus Estimate for HWM's 2024 sales and EPS indicates a rise of 10.6% and 29.9%, respectively, from prior-year levels.
M-tron Industries, Inc. MPTI currently carries a Zacks Rank #2. It has topped earnings estimates in three of the trailing four quarters and missed once, with an average surprise of 26.7%.
The Zacks Consensus Estimate for MPTI's 2024 sales and EPS indicates a rise of 8.8% and 58.6%, respectively, from prior-year levels.
Gates Industrial Corporation plc GTES presently carries a Zacks Rank #2. GTES has a trailing four-quarter earnings surprise of 14.9%, on average.
The Zacks Consensus Estimate for GTES' 2024 sales indicates a 0.2% decline but EPS growth of 2.9% from the prior-year levels.

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