By Lisa Beilfuss
Home builder Lennar Corp. on Wednesday said profit rose 33% in
its latest quarter, as the continuing recovery in the housing
market led to an increase in deliveries and higher prices.
Shares rose 4% in midday trading, adding to the 9% gain notched
this year through Tuesday's close.
Chief Executive Stuart Miller credited the much
better-than-expected results to the improving home-building market,
buoyed by a better employment picture, reasonable affordability
levels, supply shortages and favorable monthly payment comparisons
to rentals.
A report this week showed new home sales in May climbed to the
highest level in more than seven years, while building permits
jumped 25% from a year earlier--the latest signs the housing market
is building steam after years of sluggish progress.
"We're still in the early stages of a multiyear slow but steady
housing recovery," and the "spring selling season confirms that the
market is continuing to improve at a very consistent pace" Mr.
Miller said on a conference call with analysts.
The CEO cited some downsides facing the market, like the
regulations surrounding mortgages, the slower-than-expected
entrance of first-time buyers and millennials' propensity to rent,
but said the downsides are overall "very limited."
For the Miami-based builder, which has been focused on the
higher-end first-time buyer and move-up market, deliveries during
the quarter jumped 20% to 5,989 homes, while the average sale price
of homes delivered increased 8.1% to $348,000.
As first-time buyers are more sensitive to price and
interest-rate increases, Lennar's President Rick Beckwitt said, "we
don't know how much longer we'll be able to nudge prices up,"
though pricing power is currently strong.
New orders, considered an indicator of a builder's future
performance, soared 18% to 7,271 homes. Analysts at RBC projected
an 8.5% year-over-year increase to 6,709 homes. The average sales
price rose 8.1% to $348,000.
Lower expenses also contributed to the better-than-expected
profit. Selling, general and administrative expenses dropped 21%
during the May period, more than the company had expected.
Like others in the industry, Lennar has been ramping up
incentives to drive sales. In the quarter ended in May, Lennar
boosted its average sales incentive by 5.9% to $21,500 for each
home it closed on in the period.
Gross margin on home sales contracted to 23.8% from 25.5%, which
the company attributed to higher land costs. Lennar said the
increase in the average sales price helped offset that effect.
Chief Financial Officer Bruce Gross said Lennar is still on
track to report a full-year gross margin of 24%.
Overall for the May quarter, Lennar reported a profit of $183
million, or 79 cents a share, up from $137.7 million, or 61 cents a
share, a year earlier.
Revenue grew 32% to $2.39 billion.
Analysts polled by Thomson Reuters were expecting 64 cents in
per-share profit on $2 billion in revenue.
Financial-services revenue, about 8% of the top line, rose more
than 50% to $169.9 million, following higher refinance volume and
the better backlog conversion. Analysts at Susquehanna said
performance in the business contributed about 5 cents to the
earnings beat. But with the recent increase in mortgage rates,
Lennar expects some cooling in the refi market during the second
half of the year, the CFO said.
Lennar's multifamily business, meanwhile, posted another
operating loss and profit in its Rialto segment--which buys and
sells distressed commercial and residential mortgages--nearly
halved.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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