Lennar Q3 Earnings & Revenues Beat, Stock Down on Tepid Q4 View

Lennar Corporation LEN reported third-quarter fiscal 2024 results, wherein its earnings and revenues surpassed the Zacks Consensus Estimate.

On a year-over-year basis, revenues 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, earnings fell by a cent from the year-ago period. LEN's stock plunged 2.4% in the after-hours trading session on Sept. 19. Investors' sentiments might have been hurt by lower earnings and gross margin in the fiscal third quarter, as well as tepid fiscal fourth-quarter guidance.

Quarterly Numbers

LEN reported adjusted earnings per share (excluding mark-to-market gains on technology investments and one-time items in its Multifamily segment) of $3.90, which topped the Zacks Consensus Estimate of $3.62 by 7.7%. The metric, however, slipped 0.3% year over year from $3.91 per share.

Segment Details

Homebuilding: Revenues of the segment totaled $9.05 billion, up 8.7% from the prior-year quarter. Under the Homebuilding umbrella, home sales contributed $9.02 billion to total revenues, up 8.8% from a year ago.

Land sales accounted for $19.5 million, down from $20.4 million in the prior-year quarter. The Other homebuilding unit contributed $8.6 million to homebuilding revenues, down from $12.3 million a year ago.

Home deliveries for the reported quarter improved 16% from the year-ago level to 21,516 units. The reported figure was better than our projection of 20,598 units for the quarter. The average sales price of homes delivered was $422,000, down 5.8% 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 $432,910 for the fiscal third quarter.

New orders rose 5% from the year-ago quarter to 20,587 homes. However, the potential value of net orders fell 0.9% year over year to $8.56 billion.

Backlog at the fiscal third-quarter end declined 20.5% from the year-ago quarter to 16,944 homes. Potential housing revenues from backlog decreased 21.4% year over year to $7.75 billion.

The gross margin on home sales was 22.5% for the quarter, down 190 basis points (bps). Notably, the reported figure came below our projection of 23% for the quarter. The decline was mainly due to decreased revenues per square foot and increased land costs year over year.

SG&A expenses — as a percentage of home sales — decreased 30 bps to 6.7% due to a decrease in broker commissions and benefits of LEN's technology efforts.

Financial Services: The segment's revenues increased year over year to $273.3 million from $266.2 million for the reported quarter. Operating earnings for the quarter increased to $144.4 million from $149 million a year ago.

Lennar Multi-Family: Revenues of $93.4 million in the segment were down from $137.4 million in the prior-year quarter. The segment registered operating earnings of $78.9 million for the quarter against a loss of $8.7 million a year ago.

Lennar Other: The segment's revenues totaled $3.6 million, significantly down from $7.4 million a year ago. Its operating earnings were $20.1 million for the quarter against a loss of $26.2 million a year ago.

Financials

At the fiscal third-quarter end, Lennar had homebuilding cash and cash equivalents of $4.04 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 $6.2 billion of liquidity.

The total homebuilding debt was $2.26 billion as of the fiscal third-quarter end, down from $2.82 billion at the fiscal 2023-end. Homebuilding debt to capital at the fiscal third-quarter end was 7.6%, down from 9.6% at the fiscal 2023-end.

LEN repurchased 3.4 million shares for $519 million in the fiscal third quarter.

Guidance

For fourth-quarter fiscal 2024, the company expects deliveries within 22,500-23,000 homes, depicting a fall from 23,795 homes delivered in the year-ago period. The company expects the ASP of the delivered units to be nearly $425,000, down from an ASP of $441,000 reported a year ago.

The gross margin on home sales is expected to be flat year over year. SG&A expenses, as a percentage of home sales, are likely to be in the range of 6.7-6.8% for the quarter. In the prior year, gross margin was 24.2%, and SG&A was 6.6%.

New orders are likely to be within 19,000-19,300 units, up from 17,366 homes reported a year ago.

Financial Services operating earnings are expected to be around $140 million, down from $168 million a year ago.

LEN's Zacks Rank & Stocks to Consider

Lennar currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are M/I Homes, Inc. MHO, Meritage Homes Corporation MTH and PulteGroup, Inc. PHM. Each stock presently carries a Zacks Rank #2 (Buy).

M/I Homes is a Columbus, OH-based homebuilder that engages in the construction and sale of single-family residential homes.

MHO's EPS estimates for 2024 have increased to $19.76 from $19.58 over the past 30 days. The company's earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed on one occasion, the average being 4.8%. MHO's earnings are expected to rise 21.9% year over year in 2024.

Meritage Homes is a Scottsdale, AZ-based company that designs and builds single-family attached and detached homes.

MTH's EPS estimates for 2024 have increased to $21.09 from $20.33 over the past 60 days. The company's earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 21.5%. MTH's earnings are expected to rise 5.8% year over year in 2024.

PulteGroup is an Atlanta, GA-based homebuilder engaged in homebuilding and financial services businesses.

PHM's EPS estimates for 2024 have increased to $13.36 from $12.85 over the past 60 days. The company's earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 10%. PHM's earnings are expected to rise 14% year over year in 2024.

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