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Lennar (LEN) Down 15.2% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Lennar Corporation (LEN - Free Report) . Shares have lost about 15.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is LEN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First Quarter of Fiscal 2018 Results
Lennar Corporation surpassed earnings as well as revenue expectations in the first quarter of fiscal 2018.
The company’s first-quarter adjusted earnings of $1.11 per share surpassed the Zacks Consensus Estimate of 92 cents by 20.7%. The reported figure mainly includes integration costs related to the acquisition of CalAtlantic Group, Inc. and one-time non-cash write down of deferred tax assets due to the reduction in the federal corporate income tax rate. Including these items, the reported figure came in at 53 cents per share in the quarter, increasing considerably from the year-ago profit level of 16 cents per share.
The improvement was primarily attributable to greater demand for homes accompanied with higher prices.
Total revenues of $2.98 billion beat the Zacks Consensus Estimate of $2.89 billion. Revenues also increased 28% year over year as the Homebuilding, Financial Services, Rialto and Multifamily segments performed significantly well.
CalAtlantic Acquisition
In February, Lennar completed its strategic acquisition of CalAtlantic. Its first-quarter results benefited from this integration, as well as a strong economy and an improving job market. The company remains enthusiastic about its current results as well as future expectations, owing to this takeover.
Stuart Miller, Chief Executive Officer of Lennar, said, "Our first quarter results begin to display the true power of this combination. Although these results do not include 2 ½ months of CalAtlantic's operations, all company metrics have performed as expected or better and we have grown more confident in our ability to exceed our $100 million synergy target in 2018 and we are on track to meet our $365 million synergy target in 2019."
Segment Details
Homebuilding: The segment’s revenues increased 34% from the prior-year quarter to $2.66 billion, driven by higher number of homes delivered and a rise in average selling prices. Within the Homebuilding umbrella, home sales constituted $2.65 billion (up 33.5% year over year) and land sales accounted for $13 million (down 63%).
New home orders increased 30% from the year-ago quarter to 8,456 in the fiscal first quarter. The potential value of net orders increased 38% year over year to $3.4 billion.
Home deliveries increased 24% from the prior-year quarter to 6,765, buoyed by higher number of homes delivered across all homebuilding segments.
The average selling price (ASP) of homes delivered was $395,000, reflecting an increase of 7.9% year over year.
In the quarter under review, backlog grew 95% from the year-ago quarter to 17,566 homes. Potential housing revenues from backlog increased 118% year over year to $7.7 billion.
Margins
Adjusted gross margin on home sales expanded 50 basis points (bps) to 21.6%. This was due to an increase in the average sales price of homes delivered and increased volume.
As a percentage of home sales, SG&A (selling, general and administrative) expenses declined 60 bps to 9.7% from 10.3% a year ago. The improvement was due to improved operating leverage, owing to higher home deliveries.
Financial Services: Financial Services revenues increased 15.6% to $171.1 million in the quarter. Operating earnings at the segment were $19.7 million, down from $20.7 million a year ago.
Rialto Investments: Rialto Investments’ revenues of $54.3 million decreased from $82 million a year ago. The segment reported operating earnings of $9.2 million in the quarter against operating loss of $0.8 million in the year-ago quarter.
Lennar Multi-Family: Lennar Multi-Family revenues of $93.3 million increased from $88.7 million in the prior-year quarter.
The segment incurred an operating loss of $1.2 million in the quarter. In the year-ago quarter, the segment registered earnings of $19.2 million.
Financials
Lennar Homebuilding’s cash and cash equivalents totaled $733.9 million as of Feb 28, 2018, down from $2.3 billion as of Nov 30, 2017. Net Lennar Homebuilding debt was $9.6 billion as of Feb 28, 2018 compared with $4.1 billion as of Nov 30, 2017.
Fiscal 2018 Guidance (including CalAtlantic)
Lennar expects deliveries to be within 45,765 homes for the year. With the addition of CalAtlantic, average selling price is expected in the range of $400K-$405K. Lennar’s net community count is expected to be 1,350 at the end of the year.
Gross margin is expected to be between 21.5% and 22% for the year with Q2 and Q3 in the 21.0%-21.6% range, and 22.25%-22.75% in Q4.
SG&A expenses will likely be 8.8-9%, wherein Q2 will register 9.1%-9.4%; Q3 9-9.2%; and Q4 will come in the 8-8.3% range. Operating margin is expected to be in the range of 12.5-13.25%.
Effective tax rate will be approximately 24% quarterly.
The company expects its Financial Services to generate operating profits in the range of $190-$200 million for the year. Rialto business is expected to generate profits within $60-$70 million. Multifamily is expected to generate about $45-$50 million in profits.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter. In the past month, the consensus estimate has shifted by 60.6% due to these changes.
At this time, LEN has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, LEN 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) Down 15.2% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Lennar Corporation (LEN - Free Report) . Shares have lost about 15.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is LEN due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
First Quarter of Fiscal 2018 Results
Lennar Corporation surpassed earnings as well as revenue expectations in the first quarter of fiscal 2018.
The company’s first-quarter adjusted earnings of $1.11 per share surpassed the Zacks Consensus Estimate of 92 cents by 20.7%. The reported figure mainly includes integration costs related to the acquisition of CalAtlantic Group, Inc. and one-time non-cash write down of deferred tax assets due to the reduction in the federal corporate income tax rate. Including these items, the reported figure came in at 53 cents per share in the quarter, increasing considerably from the year-ago profit level of 16 cents per share.
The improvement was primarily attributable to greater demand for homes accompanied with higher prices.
Total revenues of $2.98 billion beat the Zacks Consensus Estimate of $2.89 billion. Revenues also increased 28% year over year as the Homebuilding, Financial Services, Rialto and Multifamily segments performed significantly well.
CalAtlantic Acquisition
In February, Lennar completed its strategic acquisition of CalAtlantic. Its first-quarter results benefited from this integration, as well as a strong economy and an improving job market. The company remains enthusiastic about its current results as well as future expectations, owing to this takeover.
Stuart Miller, Chief Executive Officer of Lennar, said, "Our first quarter results begin to display the true power of this combination. Although these results do not include 2 ½ months of CalAtlantic's operations, all company metrics have performed as expected or better and we have grown more confident in our ability to exceed our $100 million synergy target in 2018 and we are on track to meet our $365 million synergy target in 2019."
Segment Details
Homebuilding: The segment’s revenues increased 34% from the prior-year quarter to $2.66 billion, driven by higher number of homes delivered and a rise in average selling prices. Within the Homebuilding umbrella, home sales constituted $2.65 billion (up 33.5% year over year) and land sales accounted for $13 million (down 63%).
New home orders increased 30% from the year-ago quarter to 8,456 in the fiscal first quarter. The potential value of net orders increased 38% year over year to $3.4 billion.
Home deliveries increased 24% from the prior-year quarter to 6,765, buoyed by higher number of homes delivered across all homebuilding segments.
The average selling price (ASP) of homes delivered was $395,000, reflecting an increase of 7.9% year over year.
In the quarter under review, backlog grew 95% from the year-ago quarter to 17,566 homes. Potential housing revenues from backlog increased 118% year over year to $7.7 billion.
Margins
Adjusted gross margin on home sales expanded 50 basis points (bps) to 21.6%. This was due to an increase in the average sales price of homes delivered and increased volume.
As a percentage of home sales, SG&A (selling, general and administrative) expenses declined 60 bps to 9.7% from 10.3% a year ago. The improvement was due to improved operating leverage, owing to higher home deliveries.
Financial Services: Financial Services revenues increased 15.6% to $171.1 million in the quarter. Operating earnings at the segment were $19.7 million, down from $20.7 million a year ago.
Rialto Investments: Rialto Investments’ revenues of $54.3 million decreased from $82 million a year ago. The segment reported operating earnings of $9.2 million in the quarter against operating loss of $0.8 million in the year-ago quarter.
Lennar Multi-Family: Lennar Multi-Family revenues of $93.3 million increased from $88.7 million in the prior-year quarter.
The segment incurred an operating loss of $1.2 million in the quarter. In the year-ago quarter, the segment registered earnings of $19.2 million.
Financials
Lennar Homebuilding’s cash and cash equivalents totaled $733.9 million as of Feb 28, 2018, down from $2.3 billion as of Nov 30, 2017. Net Lennar Homebuilding debt was $9.6 billion as of Feb 28, 2018 compared with $4.1 billion as of Nov 30, 2017.
Fiscal 2018 Guidance (including CalAtlantic)
Lennar expects deliveries to be within 45,765 homes for the year. With the addition of CalAtlantic, average selling price is expected in the range of $400K-$405K. Lennar’s net community count is expected to be 1,350 at the end of the year.
Gross margin is expected to be between 21.5% and 22% for the year with Q2 and Q3 in the 21.0%-21.6% range, and 22.25%-22.75% in Q4.
SG&A expenses will likely be 8.8-9%, wherein Q2 will register 9.1%-9.4%; Q3 9-9.2%; and Q4 will come in the 8-8.3% range. Operating margin is expected to be in the range of 12.5-13.25%.
Effective tax rate will be approximately 24% quarterly.
The company expects its Financial Services to generate operating profits in the range of $190-$200 million for the year. Rialto business is expected to generate profits within $60-$70 million. Multifamily is expected to generate about $45-$50 million in profits.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter. In the past month, the consensus estimate has shifted by 60.6% due to these changes.
Lennar Corporation Price and Consensus
Lennar Corporation Price and Consensus | Lennar Corporation Quote
VGM Scores
At this time, LEN has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, LEN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.