Lennar Tops Expectations as Housing Market Continues to Improve -- 2nd Update
September 21 2015 - 4:11PM
Dow Jones News
By Lisa Beilfuss and Kris Hudson
Home builder Lennar Corp. posted double-digit percentage gains
in new orders, deliveries and net income for its fiscal third
quarter, underscoring a sustained but unspectacular recovery in the
U.S. new-home market.
Lennar Chief Executive Stuart Miller described the market as
improving in a "slow and steady manner" in Lennar's quarter ended
Aug. 31, echoing what the Federal Reserve's monetary policy-setting
arm said in its statement last week. Miami-based Lennar, the
second-largest U.S. home builder by houses constructed, behind D.R.
Horton Inc., posted a 10% increase in orders from a year earlier, a
16% increase in deliveries of completed homes and a 5% increase in
average price to $350,000.
"We have believed and continue to believe that the downside in
the housing market is very limited and the upside very
significant," Mr. Miller said Monday in a conference call with
investors to discuss Lennar's results.
Mr. Miller outlined several points that bode well for a U.S.
home-construction market that, though it is rebounding, remains at
roughly half of its average annual output in the latest normal
housing market of 2001 to 2003 due to weak demand for starter homes
so far in the recovery and shortages of construction labor and
buildable land. Construction starts on single-family homes in the
U.S. in this year's first eight months are up a lukewarm 11% from
the same period last year.
First, Mr. Miller noted that, though mortgage-qualification
standards remain prohibitive for many borrowers, the share of
Lennar's sales going to first-time buyers rose to 30% in its third
quarter from 25% a year earlier. That dovetails with a report by
the National Association of Realtors on Monday that 32% of sales of
existing homes in August went to first-time buyers, up from 29% a
year ago.
Even so, Lennar remains bullish on its rental-apartment
business, which has 28 projects totaling 7,700 units under
development with partners. "There is very, very large pent-up
demand both in rental and in for-sale (housing) for buyers who need
to come back in," Mr. Miller said.
Despite Lennar's gains in orders and closings, and a 24%
increase in revenue to $2.5 billion, the builder's gross margins
slipped to 24.1% from 25.2% a year earlier. That was due mostly to
higher land costs, which surged 56% from last year's quarter.
Analysts were expecting a steeper decline in margin, but the
surge in closings and incentives that were little changed from a
year earlier were behind the gross-margin beat, said Jay McCanless,
an analyst at Sterne Agee.
For the quarter, Lennar reported a profit of $223 million, or 96
cents a share, up from $177.8 million, or 78 cents a share, a year
earlier. Analysts projected 80 cents in per-share profit and $2.42
billion in sales, according to Thomson Reuters.
Mr. Miller also provided an update on Lennar's nascent efforts
to build communities of single-family homes for rent. The builder
earlier this year started its first such project of 80 homes near
Reno, Nev. Lennar now "expects to expand on that platform" due to
the "very successful" early results from the Reno project, Mr.
Miller said. He didn't provide additional details on the call.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com and Kris Hudson
at kris.hudson@wsj.com
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(END) Dow Jones Newswires
September 21, 2015 15:56 ET (19:56 GMT)
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