Lennar Earnings Squash Estimates, Revenue Jumps, Shares Jump (LEN)

Home builder Lennar LEN reported second quarter results that beat analyst estimates on the top and bottom lines.

Shares rose pre-market on the beat as investors cheered the data ahead of key housing-related economic data due out this morning.

Second Quarter Results

For the fiscal second quarter ended May 31, Lennar reported earnings per share of $0.61 vs. the consensus Wall Street estimate of $0.33. However, excluding a one-time benefit of $0.18 per share due to the reversal of a deferred tax-asset valuation allowance, Lennar reported comparable EPS of $0.43, which was 104.7 percent above the $0.21 comparable EPS from the second quarter of last year.

Revenue was also strong in the quarter as revenue rose to $1.43 billion from $930.16 million a year ago. Analysts had forecast revenue of $1.33 billion, meaning that Lennar earned 7.52 percent more than the forecast.

Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "Against the backdrop of recent investor concerns over mortgage rate increases, we believe that our second quarter results together with real time feedback from our field associates continue to point towards a solid housing recovery. Our second quarter results reflect significant improvement in all of our key homebuilding and financial services metrics. Demand in all of our markets continues to outpace supply which is constrained by limited land availability and fewer competing homebuilders. At the same time, affordability remains high and despite recent interest rate increases, we have seen very little impact on sales or pricing."

"As we have discussed on prior calls, conflicting macroeconomic data and interest rates reverting to normal levels can create headline risk to an otherwise straight-line recovery. However, the fundamentals of the homebuilding industry continue to be primarily driven by high affordability levels, favorable monthly payment comparisons to rentals, and overall supply shortages."

Quarterly Highlights

In the second quarter, Lennar delivered 4,464 homes, up 39 percent from the second quarter of 2012, while orders rose 27 percent. The backlog of orders rose 55 percent to 6,163 homes representing $1.9 billion in orders. The backlog in dollar terms grew 76 percent, implying more recent orders in the backlog were at higher price-points than older orders.

Margins on home sales expanded to 24.1 percent, rising 160 percent, while SG&A expenses as a percentage of revenue also saw improvement.

Mr. Miller continued, "New home production lagged population growth and household formation during the recent economic downturn. New development activity is just starting to accelerate, but land availability will continue to be a constraint for some time, given the length of the downturn. Fortunately, Lennar has been an active buyer of land over the last several years and we are well positioned to succeed in this environment."

"During the second quarter, our gross margin percentage on home sales improved to 24.1%, while our S, G&A % of home sales came in under 11% for the first time since our third quarter of 2006. Our operating leverage should continue to improve, driven by our higher new orders . During the quarter, our El Toro joint venture, which is managed by FivePoint Communities, contributed $13.0 million of earnings to our bottom line. Meanwhile, our financial services business generated $29.2 million of earnings during the quarter, as the refinance business continued its strong performance."

Mr. Miller concluded, "Our homebuilding and financial services businesses are performing at a high level, while our ancillary businesses continue to mature. With a strong backlog at quarter-end, growing demand, and the next phase of the housing recovery continuing to show strength, we are well positioned for another year of solid housing profitability."

Credit Facility

In June, Lennar announced that it had increases the size of its credit facility to $950 million from $525 million. However, the company has not drawn down any of this credit to date as Lennar announced that there were no outstanding borrowing under the facility.

Shares Pop

Lennar shares rose 3.46 percent pre-market after beating earnings estimates. Shares gained $1.21 to $36.20 per share, still well below the 52-week high of $44.40 per share.