Lennar Corporation Conference Call Highlights

Lennar Corporation LEN reported its third quarter earnings on Wednesday. Shares of the company are up six percent.

Below are some key highlights and takeaways from its conference call.

Operations and General Remarks:

• Very solid quarter performance for our company, with profitability in each of our major segments.
• Our third quarter results demonstrate that our company is positioned to be able to continue to perform extremely well.
• The housing recovery has been moving gently upward in a fairly narrow channel, with movements up and down along the way.
• We continue to believe that there remains a production deficit.
• This shortfall will continue to define the housing market for the foreseeable future and will drive the housing recovery forward.
• Twenty-three percent sales growth, 25.2% gross margins and a 14.8% operating margin.
• Homebuilding revenues grew to $1.8 billion, up 25% over last year, while deliveries were 5,457 homes, up 9% over last over the prior year.
• Our average sales price increased by 14% year-over-year to $332,000.
• During the quarter, we opened 73 new communities and closed out 49 communities to end at 603 active communities, a 17% year-over-year increase.
• Q3's SG&A was 10.4%, a 20-basis-point year-over-year increase.
• With many of our competitors offering large incentives to drive sales, we controlled our incentives at a 5.8% rate for the quarter, which was down year-over-year and sequentially from 6% and 5.9% respectively.
• Year-over-year, labor and material costs are up 8.5% to around $49 per square foot.

Financial Results:

• Our net earnings for the third quarter were $0.78 per diluted share versus $0.54 per share in the prior year.
• Revenues from home sales increased 25% in the third quarter, and that was driven by a 10% increase in deliveries.
• Fourteen percent year-over-year increase in average sales price to $332,000.
• Gross margin, consistent with what we have previously said and given the competitive pressures in the market, we expect our gross margins to be around 25% for the fourth quarter.
• Our mortgage pre-tax income increased to $20.6 million from $18.8 million in the prior year.
• The tax rate for the quarter came down, it was 33.3%.
• Our gross margin on home sales was 25.2% which was up 30 basis points.
• Completed unsold inventory sequentially from the second quarter from 905 homes to 862 homes.

Guidance:

• We're not expecting any significant sales activities in the joint venture and landline for the fourth quarter.
• And as I mentioned, our fourth quarter effective tax rate should be around 36%.
• We're still expected to end 2014 with a range of approximately 600 to 625 communities.