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Lennar (LEN) Q3 Earnings Top on Strength in Homebuilding


Lennar Corporation LEN performed impressively and beat expectations on both counts for the third time in a row in fiscal 2016.

Lennar’s third quarter fiscal 2016 adjusted earnings of $1.01 per share surpassed the Zacks Consensus Estimate of 88 cents by 14.8%. Earnings advanced 5.2% from the year-ago profit level of 96 cents a share driven by solid performance in its homebuilding business.

Total revenue of $2.833 billion beat the Zacks Consensus Estimate of $2.663 billion by 6.4%. Revenues also grew 13.7% year over year as homebuilding, financial services, Rialto and multi-family segments performed significantly well in the quarter.

Segment Details

Homebuilding Revenues: Segment revenues increased 11% year over year to $2.4 billion, driven by higher number of homes delivered and an increase in average sales price of homes delivered.

New home orders increased 8% year over year to 7,018 in the third quarter of fiscal 2016. The potential value of net orders increased 10% year over year to $2.6 billion.

New home deliveries, excluding unconsolidated entities, were up 7% year over year to 6,758 driven by higher number of homes delivered across all the homebuilding segments excluding Houston. The number of homes delivered declined in Houston, as volatility in the energy sector hurt housing demand.

The average selling price (ASP) of homes delivered was $362,000, up 3.4% year over year.

Backlog grew 12% year over year in the quarter to 9,253 homes. Potential housing revenues from backlog rose 14% year over year to $3.4 billion.

The company increased sales incentives during the quarter. Lennar’s sales incentives comprised 5.9% of home sales revenues in the third quarter, up 30 basis points (bps) year over year. Incentives also increased 20 bps from 5.7% in the previous quarter.


Gross margin on home sales declined 150 bps to 22.6% owing to rising land costs, partially offset by higher average sales price of homes delivered.

As a percentage of sales, SG&A expenses decreased 60 bps to 9.3% driven by improved operating leverage from increased number of homes delivered and benefits from increased focus on digital marketing.

Financial Services: Financial Services revenues increased 13.4% to $191.4 million in the quarter. Operating earnings of the segment were $53.2 million, up 35% from $39.4 million in the prior-year quarter due to increased profit per transaction in mortgage and title operations.

Rialto Investments: Rialto Investments’ revenues of $63.9 million increased 23.8% year over year due to an increase in Rialto Mortgage Finance securitization revenues owing to higher pricing.

The segment reported operating earnings of $5.9 million in the quarter compared with $9 million a year ago.

Lennar Multi-Family: Lennar Multi-Family revenues of $81.6 million increased 108.7% in the reported quarter from $39.1 million in the prior year quarter.

The segment’s operating income was $2.6 million in the third quarter as against a loss of $3 million in the year-ago quarter, driven by the sale of a property.

Lennar currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the construction sector include MDC Holdings Inc.MDC, TRI Pointe Group, Inc. TPH and PulteGroup, Inc. PHM. While MDC Holdings and TRI Pointe sport a Zacks Rank #1 (Strong Buy), PulteGroup carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Price, Consensus and EPS Surprise

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