Shares of Lennar Corporation LEN gained 4.20% on Jun 24, as the homebuilding company performed impressively and beat expectations on both counts for the second time in fiscal 2015, despite soft margins.
Lennar’s second-quarter 2015 adjusted earnings of 79 cents per share beat the Zacks Consensus Estimate of 65 cents by 21.5%. Earnings jumped 29.5% year over year driven by an increase in revenues.
Total revenue of $2.39 billion beat the Zacks Consensus Estimate of $2.05 billion by 16.6%. Revenues also grew 31.3% year over year as homebuilding, financial services and multi-family segment performed significantly well in the quarter.
Homebuilding Revenues
Homebuilding revenues increased 30.1% year over year to $2.12 billion from $1.63 billion in the prior year quarter. Home sales were $2.1 billion in the quarter, up 30% year over year, driven by pricing gains and a double-digit increase in home deliveries.
New home orders increased 18% year over year to 7,271 in the second quarter of fiscal 2015. The potential value of net orders increased 28% year over year to $2.6 billion.
New home deliveries, excluding unconsolidated entities, were up 20.4% year over year to 5,989 driven by an increase in its homebuilding segments and the Homebuilding Other segment.
The average selling price of homes delivered was $348,000, up 8% year over year.
Backlog grew 18% year over year in the quarter to 8,073 homes. Potential housing revenues from backlog rose 23% year over year to $2.9 billion.
The company decreased sales incentives during the quarter. Lennar’s sales incentives comprised 5.8% of home sales revenues in the second quarter, lower than 5.9% in the prior year quarter and 6.3% in the first quarter of 2015.
Margins
Gross margin on home sales declined 170 basis points (bps) to 23.8% owing to rising land costs, partially offset by higher average sales price of homes delivered.
Selling, general and administrative (SG&A) expenses were $209.0 million in the second quarter, up 20.7% from the prior-year period. As a percentage of sales, SG&A expenses were however down 80 bps to 10.0%, driven by improved operating leverage from increased number of homes delivered.
Financial Services
Financial Services revenues increased 53.1% to $169.9 million in the quarter. Operating earnings of the segment were $39.1 million, up from $18.3 million in the prior-year quarter. The increase can be attributed to higher mortgage originations fueled by strong refinance market and higher purchase volume due to increased number of Lennar home deliveries and a larger retail presence.
Rialto Investments
Rialto Investments’ revenues of $67.9 million increased 24.8% year over year. The increase was led by higher securitization revenues and interest income from Rialto Mortgage Finance and the receipt of $4.8 million of Rialto's carried interests in Rialto Real Estate Fund, LP ("Fund I") and Rialto Real Estate Fund II, LP ("Fund II").
Lennar Multi-Family
Lennar Multi-Family revenues increased to $39 million in the reported quarter, significantly higher than $18.6 million in the prior-year quarter.
The segment incurred an operating loss of $8.7 million in the second quarter, wider than a loss of $7.2 million in the year-ago quarter, owing to higher general and administrative expenses.
Lennar currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the building sector include M/I Homes, Inc. MHO, MDC Holdings Inc. MDC and Beazer Homes USA Inc. BZH While Beazer Homes sports a Zacks Rank #1 (Strong Buy), MDC Holdings and M/I Homes hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment