Despite soft margins, Lennar Corporation (LEN - Analyst Report) performed impressively and beat expectations on both counts in the first quarter of fiscal 2015.
Lennar’s first-quarter 2015 adjusted earnings of 50 cents per share beat the Zacks Consensus Estimate of 45 cents by 11%. Earnings jumped 42.9% year over year driven by an increase in homebuilding revenues.
Lennar Corporation - Earnings Surprise | FindTheCompany
Total revenue of $1.64 billion beat the Zacks Consensus Estimate of $1.49 billion by 10.1%. Revenues also grew 20.6% year over year as homebuilding, financial services and multi-family segment performed significantly well in the quarter.
Homebuilding Revenues
Homebuilding revenues increased 17.1% year over year to $1.44 billion from $1.23 billion in the prior year quarter. Home sales were $1.40 billion in the quarter, up 23% year over year, driven by pricing gains and strong deliveries.
New home orders increased 18% year over year to 5,287 in the first quarter of fiscal 2015. The potential value of net orders increased 25% year over year to $1.8 billion.
New home deliveries, excluding unconsolidated entities, were up 20% year over year to 4,301 driven by higher demand for new homes.
The average selling price (ASP) of homes delivered was $316,000, up 3% year over year.
Backlog grew 20% year over year in the quarter to 6,817 homes. Potential housing revenues from backlog rose 24% year over year to $2.4 billion.
The company increased sales incentives during the quarter owing to an increasingly competitive environment. Lennar’s sales incentives comprised 6.3% of home sales revenues in the first quarter, flat year over year and lower than 6.6% in the previous quarter.
Land Sales
Land sales amounted to $38.1 million in the quarter, significantly down from $91.2 million in the prior-year quarter.
Margins
Gross margin on home sales declined 200 basis points (bps) to 23.1% owing to rising labor, land and material costs, partially offset by higher average sales price of homes delivered. Gross margin on home sales included the impact of $5.5 million insurance recovery.
Selling, general and administrative (SG&A) expenses were $160.4 million in the first quarter, up 18.7% from the prior-year period. As a percentage of sales, SG&A expenses, however, were down 40 bps to 11.4% driven by improved operating leverage from increased number of homes delivered and a decline in insurance reserves.
Financial Services
Financial Services revenues increased 62.2% to $124.8 million in the quarter. Operating earnings of the segment were $15.5 million, up from $4.5 million in the prior-year quarter due to higher profit per transaction in title operations and higher origination volume in mortgage operations.
Rialto Investments
Rialto Investments’ revenues of $41.2 million decreased 12.3% year over year due to lower interest income.
Adjusted operating earnings increased 76.9% to $4.6 million in the quarter.
Lennar Multi-Family
Lennar Multi-Family revenues increased to $36.5 million in the reported quarter, significantly higher than $7.8 million in the prior-year quarter.
The segment incurred an operating loss of $5.7 million in the first quarter, narrower than a loss of $6.2 million in the year-ago quarter.
Lennar currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Investors interested in the construction sector can also consider stocks like Toll Brothers Inc. (TOL - Analyst Report), Ryland Group Inc. (RYL - Snapshot Report), and Quanex Building Products Corp. (NX - Snapshot Report). While Quanex Building Products and Toll Brothers sport a Zacks Rank #1 (Strong Buy), Ryland Group holds a Zacks Rank #2 (Buy).
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