Lennar (LEN) shares rise on pace with Q2 earnings and revenue – June 21, 2022

Lennar Societyit is (LEN Free Report) shares rose 3.4% on June 21, following the release of results for the second quarter of fiscal 2022 (ended May 31, 2022). Quarterly earnings and revenue beat Zacks’ consensus estimate, despite unprecedented supply chain challenges.

Commenting on the quarterly release, Jon Jaffe, Co-Chief Executive Officer and Co-Chairman of Lennar, said, “During the quarter, our homebuilding machine continued to focus intensely on production. Our cycle time in the quarter only increased slightly sequentially, so it looks like the well-documented supply chain issues have started to ease. Our quarterly starts and sales pace remained strong at 6.2 homes and 5.0 homes per community, respectively, in the second quarter. »

Quarterly figures

LEN reported quarterly adjusted earnings (excluding market value gains and losses in both years) of $4.69 per share, beating Zacks’ consensus estimate of $3.95. This is the 13th consecutive quarter of earnings beating. Reported profit was also up 59% year-over-year, mainly benefiting from effective cost control and a focus on improving the efficiency of its homebuilding platform, which resulted in higher operating leverage.

Revenue of $8.36 billion topped the consensus mark of $8.13 billion. The reported figure was up 30% year-on-year.

Segment details

construction of houses: Segment revenue totaled $7.98 billion, up 32.3% from the prior year quarter. Within residential construction, home sales contributed $7.96 billion to total revenue, up 33.2% from a year ago. Land sales were $7.5 million, compared to $38.8 million in the prior year quarter. The Other Home Construction unit contributed $6.78 million to home construction revenue, down from $8.53 million a year ago.

Home deliveries for the reported quarter improved 14% from the prior year level at 16,549 units. The average selling price of delivered homes was $483,000, up 17% from a year ago.

New orders rose 4% from the year-ago quarter to 17,792 homes. The potential value of net orders also increased 20% year over year to $9.1 billion.

Backlog at the end of the second fiscal quarter increased 16% from a year ago to 28,624. Potential housing revenue from backlog was also up 33% year over year. the other to reach $14.7 billion.

Residential construction margins

Gross margin on home sales was 29.5% for the quarter, up 340 basis points (bps). The upside can be attributed to higher revenue per square foot, flat land costs, its efforts to reduce construction costs, and lower interest charges.

Selling, general and administrative or SG&A expense – as a percentage of home sales – improved 150 basis points to 6.1% due to improved operating leverage, taking into account the benefits of a decrease broker commissions and company technology efforts. That’s the lowest second-quarter percentage in Lennar history.

Homebuilding operating profit of $1.88 billion for the quarter was up from the $1.11 billion level a year earlier.

Financial services: Segment revenue decreased 8.5% year over year to $200.2 million in the current quarter. Operating profit for the quarter also declined to $103.9 million from $121.3 million a year ago due to lower mortgage net spreads, account given the stiff competition.

Multi-Family Lennar: Segment revenue of $176 million was down slightly from $177.5 million in the prior year quarter. The sector reported operating profit of $0.7 million for the quarter, compared to $22.4 million a year ago.

Other: Segment revenue totaled $4.5 million, compared to $6 million a year ago. The segment’s operating loss was $108.4 million for the quarter, compared to $54.1 million for the comparable period of 2021.

finance

Lennar had home construction cash and cash equivalents of $1.3 billion as of May 31, 2022, compared to $2.7 billion as of November 30, 2021. Total home construction debt was $4.64 billion as of May 31, 2022, nearly in line with the end of fiscal 2021. Residential construction debt to equity at the end of the second fiscal quarter was 17.7%, compared to 18.3 % at the end of fiscal year 2021.

LEN has no outstanding borrowings under the $2.575 billion revolving credit facility, providing $3.9 billion of available capacity.

Lennar repurchased 4.1 million shares for $320.6 million. This translated into a return on equity of 21.4%, up 260 basis points year-over-year.

Tips

For fiscal year 2022, Lennar expects deliveries of 68,000 homes. The company, however, refrained from providing guidance for further action, given the Fed’s actions which Lennar said “are still quite fluid and sensitive to inflation data.”

Stuart Miller, executive chairman of Lennar, added that “the housing market will rebalance supply and demand, as well as interest rates and purchase price as market conditions change.”

For the third fiscal quarter, it expects deliveries to 17,000 to 18,500 homes, with a gross margin on home sales of 28.5 to 29.5 percent. New orders are expected to be between 16,000 and 18,000 units, and ASP is expected to be slightly above fiscal second quarter levels. SG&A spending, as a percentage of home sales, is expected to be 6-6.5% for the quarter.

Zacks Rank

Lennar currently wears a Zacks rank #5 (high sell).

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