Key Takeaways From Lennar's 4th-Quarter Earnings

Homebuilder posts earnings, revenue beat

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Dec 17, 2020
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Homebuilder Lennar Corp. (LEN, Financial) released its fiscal fourth-quarter 2020 results after the market closed on Dec. 16. Both earnings and revenue surpassed Wall Street's expectations.

Earnings highlights

The homebuilder recorded earnings per share of $2.82, up 32.4% from the prior-year quarter. Analysts had anticipated EPS of $2.38. Revenue plunged 2% from the year-ago quarter to $6.83 billion. Analysts were anticipating revenue of $6.54 billion.

"The confluence of Millennials starting families and creating households of their own, along with the pro-housing effects of the COVID-19 pandemic has materially strengthened demand," Executive Chairman Stuart Miller said. "This surge in demand for housing, combined with the market's inability to produce sufficient homes to meet this demand, has exacerbated the already well-documented undersupply of new and existing homes for sale."

At the end of the quarter, the company had $2.7 billion in cash and cash equivalents.

Segment performance

In the homebuilding division, revenue tumbled 2% to $6.3 billion for the three months ended Nov. 30. Lennar attributed the decline to a lower number of homes delivered. The average sales price of homes delivered amounted to $393,000, which remained flat compared to last year.

The Miami-based company delivered 16,038 homes during the quarter (barring unconsolidated entities) compared to 16,391 in the year-ago quarter. New orders went up 16% to 15,214 homes for a total appreciation in value of 22% to $6.3 billion. The backlog amounted to 18,821 units, which was up 21%. Potential housing revenue from the backlog surged 24% to $7.8 billion.

Housing gross profit margin jumped to 25% in the fourth quarter, highlighting efforts to reduce construction expenses. This was only partly negated by reduced operating leverage courtesy of lower housing revenue.

The Financial Services segment recorded a 2.2% growth in revenue to $258.3 million. Likewise, operating earnings rose from $74.8 million in year-ago quarter to $151.2 million on the back of a robust mortgage business.

Lennar Multi-Family reported $205.4 million in sales, which grew 16.8% from last year. The segment's operating earnings totalled $26.7 million, which was an improvement from a $3.7 million operating profit in the year-ago quarter.

Looking forward

The lower borrowing costs and scintillating demand for new homes helped Lennar's overall performance for the latest quarter and the fiscal year. Miller said:

"During the quarter and fiscal year, we generated strong homebuilding cash flows of $2.0 billion and $3.8 billion, respectively, paid off debt of $1.2 billion and $2.1 billion, respectively, including all of our senior debt due in fiscal 2021, and had no borrowings under our $2.4 billion revolving credit facility at quarter end."

While new orders are expected to fall within the range of 14,500 to 14,800 homes in the first quarter of 2021, deliveries are projected to be between 12,200 homes and 12,500 homes. Gross margin as a percentage of home sales is anticipated to be around 23.5% to 23.75%, while SG&A expenses as a percentage of home sales is projected to be between 8.9% and 9%.

For the fiscal year 2021, the company anticipates deliveries to be around 62,000 to 64,000 homes. The average sale price is estimated to be in the $386,000 to $388,000 range. While gross margin is predicted to be in the range of 23.75% to 24%, SG&A expenses as a percentage of home sales is expected to be between 7.8% and 8%.

Disclosure: I do not hold any positions in the stocks mentioned.

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