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Lennar (LEN) Up 14.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Lennar (LEN - Free Report) . Shares have added about 14.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lennar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lennar Q2 Earnings & Revenues Beat Estimates, Orders Up
Lennar 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.
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
Lennar reported quarterly earnings per share (EPS) 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.
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 (ASP) 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.
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. 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. Lennar 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.
Lennar 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Lennar has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lennar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Lennar (LEN) Up 14.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Lennar (LEN - Free Report) . Shares have added about 14.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lennar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lennar Q2 Earnings & Revenues Beat Estimates, Orders Up
Lennar 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.
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
Lennar reported quarterly earnings per share (EPS) 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.
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 (ASP) 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.
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. 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. Lennar 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.
Lennar 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Lennar has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lennar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.