Homebuilder Lennar Corp. (LEN, Financial) released its fiscal second-quarter 2021 results after the market closed on June 16. Both earnings and revenue surpassed Wall Street's expectations.
Overview of the quarter
The homebuilder recorded earnings of $2.65 per share, up 61% from the prior-year quarter. Analysts had anticipated earnings of $2.38 per share. Revenue grew 22% from the year-ago quarter to $6.4 billion. Analysts were anticipating revenue of $6.1 billion.
Executive Chairman Stuart Miller commented on the company's performance:
"During the second quarter, the housing market remained very strong across the country, even as interest rates mildly ticked up. A combination of strong personal savings rates during the pandemic, strong stimulus from the government and a developing return to normalcy continued to drive the economy forward while bringing the housing market to new heights."
At the end of the quarter, the company had $2.6 billion in cash and cash equivalents. There was no homebuilding debt under the company’s $2.5 billion revolving credit facility.
Segment performance
In the homebuilding division, revenue rose 21% to $6 billion for the three months ended May 31. Lennar attributed the growth to a higher number of homes delivered. The average sales price of homes delivered amounted to $414,000. That compares with $389,000 a year ago.
The Miami-based company delivered 14,462 homes during the quarter (barring unconsolidated entities) compared to 12,653 in the year-ago quarter. New orders increased 32% to 17,157 homes for a total appreciation in value of 56% to $7.6 billion. The backlog amounted to 24,741 units, which was up 38%. Potential housing revenue from the backlog surged 56% to $11 billion.
The housing gross profit margin jumped to 26.1% in the second quarter, highlighting efforts to reduce construction expenses. In addition, improved operating leverage courtesy of higher housing revenue helped.
The financial services segment recorded 11.5% growth in revenue to $218.75 million. By contrast, operating earnings fell from $150.6 million in year-ago quarter to $121.2 million as the second quarter of 2020 included a gain of $61.4 million associated with the deconsolidation of a previously consolidated entity. Barring this gain, the company’s improved operating earnings were due to the robust mortgage business.
Lennar Multi-Family reported $177.5 million in sales, which was up from $123.1 million recorded in the year-ago quarter. The segment's operating earnings totalled $22.4 million, which was an improvement from a $0.6 million operating loss 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. In addition, a robust stimulus package coupled with continued undersupply of new and existing inventory aided the company's results.
While new orders are expected to fall within the range of 16,000 to 16,300 homes in the third quarter of 2021, deliveries are projected to be between 15,800 homes and 16,100 homes. Gross margin as a percentage of home sales is anticipated to be around 27% to 27.5%, while selling, general and administrative expenses as a percentage of home sales is projected to be between 7.3% and 7.4%.
For full fiscal 2021, the company anticipates deliveries to be around 62,000 to 64,000 homes. The average sale price is estimated to be around $420,000. While the gross margin is predicted to be within the range of 26.5% to 27% %, selling, general and administrative expenses as a percentage of home sales is expected to be between 7.3% and 7.5%.
