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Lennar Reports Second Quarter EPS of $1.30

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MIAMI, June 25, 2019 /PRNewswire/ --

  • Net earnings of $421.5 million, or $1.30 per diluted share, compared to net earnings of $310.3 million, or $0.94 per diluted share
  • Deliveries of 12,729 homes – up 5%
  • New orders of 14,518 homes – up 1%; new orders dollar value of $5.8 billion – down 4%
  • Backlog of 19,061 homes – down 3%; backlog dollar value of $7.7 billion – down 10%
  • Revenues of $5.6 billion – up 2%
  • Homebuilding operating margins of $608.3 million, compared to $427.9 million
    • Gross margin on home sales of 20.1%, compared to 16.8% (21.6% excluding purchase accounting)
    • S,G&A expenses as a % of revenues from home sales of 8.4%, compared to 8.7%
    • Operating margin on home sales of 11.6%, compared to 8.2% (12.9% excluding purchase accounting)
  • Financial Services operating earnings (net of noncontrolling interests) of $62.5 million, compared to $55.8 million
  • Multifamily operating loss (net of noncontrolling interests) of $3.9 million, compared to operating earnings of $14.8 million
  • Lennar Other operating earnings (net of noncontrolling interests) of $2.2 million, compared to $3.9 million
  • Homebuilding cash and cash equivalents of $801 million
  • Homebuilding debt to total capital of 38.3%
  • Subsequent to quarter end, retired $500 million of homebuilding senior notes
  • Repurchased one million shares for approximately $52 million

Lennar Corporation (NYSE:LEN), one of the nation's leading homebuilders, today reported results for its second quarter ended May 31, 2019. Second quarter net earnings attributable to Lennar in 2019 were $421.5 million, or $1.30 per diluted share, compared to second quarter net earnings attributable to Lennar in 2018 of $310.3 million, or $0.94 per diluted share.

Stuart Miller, Executive Chairman of Lennar, said, "We are pleased to announce our results for the second quarter where we achieved net earnings of $421.5 million, or $1.30 per diluted share, compared to $310.3 million, or $0.94 per diluted share in the prior year. Our second quarter results benefited from both first quarter deliveries postponed by weather as well as a recovering housing market. The well-documented market pause in the second half of 2018 set the stage for more moderate home price increases and lower interest rates which stimulated both affordability and demand, leading homebuyers back to the market."

Mr. Miller continued, "Accordingly, through the second quarter, the homebuying market solidified and was supported by favorable underlying fundamentals. Against that backdrop, our new orders and deliveries in the second quarter gained momentum and improved 1% and 5%, respectively, over last year."

Rick Beckwitt, Chief Executive Officer of Lennar, said, "In these recovering market conditions, our homebuilding operations executed at a high level. Our homebuilding gross margin was 20.1%, while our SG&A of 8.4% marked an all-time, second-quarter low. Our second quarter gross margin was impacted by an 80-basis point increase in incentives offered to homebuyers during the market pause. While lower rates have helped drive demand, we have continued to offer incentives, although at reduced levels, to keep our homebuilding business on track to deliver over 50,000 homes in 2019.

"Alongside our recovering homebuilding business, our Financial Services operations continued to display strong bottom-line performance with second quarter earnings of $62.5 million, a 12% increase over last year. Operating earnings improved due to increased home deliveries, combined with an intensified focus on greater efficiency in our captive businesses after selling the majority of our retail components in the first quarter of 2019. Operating earnings also benefited from our strategic technology investments which have streamlined our processes, resulting in a more efficient operating platform."

Jon Jaffe, President of Lennar, said, "During the second quarter, we continued to experience cost pressures due to land and labor shortages. These cost pressures were somewhat offset by a decrease in lumber prices and the benefit of synergies from our CalAtlantic acquisition. In the next two quarters, we expect to see margin improvement driven by a combination of additional lumber savings and direct cost synergies."

Mr. Miller concluded, "With a solid balance sheet, leading market positions and continued execution of our core operating strategies, we believe that we are well positioned to produce strong results throughout 2019."

RESULTS OF OPERATIONS

THREE MONTHS ENDED MAY 31, 2019 COMPARED TO
THREE MONTHS ENDED MAY 31, 2018

Homebuilding

Revenues from home sales increased 4% in the second quarter of 2019 to $5.2 billion from $5.0 billion in the second quarter of 2018. Revenues were higher primarily due to a 5% increase in the number of home deliveries, excluding unconsolidated entities, partially offset by a 1% decrease in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 12,706 homes in the second quarter of 2019 from 12,078 homes in the second quarter of 2018, primarily as a result of an increase in home deliveries in the East and Texas segments. The average sales price of homes delivered was $407,000 in the second quarter of 2019, compared to $413,000 in the second quarter of 2018. The decrease in average sales price primarily resulted from product mix as a larger percentage of deliveries came from the East and Texas segments as well as the Texas segment continuing to shift to lower-priced communities. Sales incentives offered to homebuyers were $26,600 per home delivered in the second quarter of 2019, or 6.1% as a percentage of home sales revenue, compared to $23,000 per home delivered in the second quarter of 2018, or 5.3% as a percentage of home sales revenue, and $25,300 per home delivered in the first quarter of 2019, or 5.8% as a percentage of home sales revenue.

Gross margins on home sales were $1.0 billion, or 20.1%, in the second quarter of 2019, compared to $840.0 million, or 16.8% (21.6% excluding purchase accounting), in the second quarter of 2018. The gross margin percentage on home sales increased primarily because the second quarter of 2018 included $236.8 million or 480 basis points of backlog/construction in progress write-up related to purchase accounting adjustments on CalAtlantic Group, Inc. ("CalAtlantic") homes that were delivered in that quarter. This was partially offset by higher construction costs and increased sales incentives.

Selling, general and administrative expenses were $435.7 million in the second quarter of 2019, compared to $432.4 million in the second quarter of 2018. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.4% in the second quarter of 2019, from 8.7% in the second quarter of 2018, due to improved operating leverage primarily as a result of an increase in home deliveries.

Other homebuilding revenue, gross margin on land sales, homebuilding equity in earnings (loss) from unconsolidated entities and homebuilding other income (expense), net, totaled a loss of $21.1 million in the second quarter of 2019, compared to earnings of $17.5 million in the second quarter of 2018. Homebuilding equity in earnings (loss) from unconsolidated entities was $19.6 million in the second quarter of 2019, compared to ($12.7) million in the second quarter of 2018. In the second quarter of 2019, Homebuilding equity in earnings from unconsolidated entities was primarily attributable to the Company's share of net operating income from one of its homebuilding unconsolidated entities. In the second quarter of 2018, Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of valuation adjustments related to assets in one homebuilding unconsolidated entity and the Company's share of net operating losses from its unconsolidated entities. Homebuilding other income (expense), net, was ($46.2) million in the second quarter of 2019, compared to $9.9 million in the second quarter of 2018. Homebuilding other expense, net in the second quarter of 2019 was primarily due to a one-time loss of $48.9 million from the consolidation of a previously unconsolidated entity.

Homebuilding interest expense was $99.7 million in the second quarter of 2019 ($96.2 million was included in costs of homes sold, $0.7 million in costs of land sold and $2.9 million in homebuilding other expense, net), compared to $75.8 million in the second quarter of 2018 ($71.9 million was included in costs of homes sold, $0.9 million in costs of land sold and $3.0 million in homebuilding other income (expense), net). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries. Prior year's interest expense was favorably impacted by purchase accounting related to the CalAtlantic acquisition.

During the second quarter of 2018, the Company recorded $23.9 million of acquisition and integration costs related to CalAtlantic.

Financial Services

Operating earnings for the Financial Services segment were $62.5 million in the second quarter of 2019 (which included $56.2 million of operating earnings and an add back of $6.3 million of net loss attributable to noncontrolling interests). Operating earnings in the second quarter of 2018 were $55.8 million. Operating earnings increased primarily due to improvement in the mortgage business as reductions in general and administrative expenses more than offset the decrease in retail origination volume, as a result of the sale of substantially all of the Company's retail mortgage business in the first quarter of 2019. In addition, there was an increase in operating earnings in the Company's Rialto Mortgage Finance business as a result of higher securitization dollar volume in the second quarter of 2019, compared to the second quarter of 2018. This was offset by a decrease in the operating earnings of the Company's title business due to a decrease in retail closed orders as a result of the sale of a majority of the retail agency business and title insurance underwriter in the first quarter of 2019. This decrease in retail volume was partially offset by an increase in captive business volume and a decrease in general and administrative expenses.

Multifamily

Operating loss for the Multifamily segment was $3.9 million in the second quarter of 2019 (which included $4.3 million of operating loss and $0.4 million of net loss attributable to noncontrolling interests), primarily due to general and administrative expenses and equity in loss as there were no sales of operating properties, partially offset by management fee income and $3.7 million of promote revenue related to two properties in Lennar Multifamily Venture I ("LMV I"). In the second quarter of 2018, the Multifamily segment had operating earnings of $14.8 million primarily due to the segment's $17.4 million share of gains as a result of the sale of two operating properties by two of Multifamily's unconsolidated entities and $5.2 million of promote revenue related to two properties in LMV I, partially offset by general and administrative expenses.

Lennar Other

Operating earnings for the Lennar Other segment were $2.2 million in the second quarter of 2019 (which included $1.8 million of operating earnings and an add back of $0.4 million of net loss attributable to noncontrolling interests), compared to $4.0 million in the second quarter of 2018 (which included $3.9 million of operating earnings and an add back of $0.1 million of net loss attributable to noncontrolling interests).

Corporate General and Administrative Expenses

Corporate general and administrative expenses were $76.1 million, or 1.4% as a percentage of total revenues, in the second quarter of 2019, compared to $84.9 million, or 1.6% as a percentage of total revenues, in the second quarter of 2018. The decrease in corporate general and administrative expenses as a percentage of total revenues was due to improved operating leverage as a result of an increase in home deliveries.

RESULTS OF OPERATIONS

SIX MONTHS ENDED MAY 31, 2019 COMPARED TO
SIX MONTHS ENDED MAY 31, 2018

On February 12, 2018, Lennar Corporation completed its acquisition of CalAtlantic. Prior year information includes CalAtlantic only after the acquisition date.

Homebuilding

Revenues from home sales increased 15% in the six months ended May 31, 2019 to $8.8 billion from $7.6 billion in the six months ended May 31, 2018. Revenues were higher primarily due to a 14% increase in the number of home deliveries, excluding unconsolidated entities. New home deliveries, excluding unconsolidated entities, increased to 21,508 homes in the six months ended May 31, 2019 from 18,812 homes in the six months ended May 31, 2018, primarily as a result of the increase in volume resulting from the CalAtlantic acquisition. The average sales price of homes delivered was $408,000 in the six months ended May 31, 2019, compared to $406,000 in the six months ended May 31, 2018. The increase in average sales price primarily resulted from the CalAtlantic acquisition, partially offset by the Texas segment continuing to shift to lower-priced communities. Sales incentives offered to homebuyers were $26,100 per home delivered in the six months ended May 31, 2019, or 6.0% as a percentage of home sales revenue, compared to $22,800 per home delivered in the six months ended May 31, 2018, or 5.3% as a percentage of home sales revenue.

Gross margins on home sales were $1.8 billion, or 20.1%, in the six months ended May 31, 2019, compared to $1.4 billion, or 17.8% (21.6% excluding purchase accounting), in the six months ended May 31, 2018. The gross margin percentage on home sales increased primarily because the six months ended May 31, 2018 included $291.9 million or 380 basis points of backlog/construction in progress write-up related to purchase accounting adjustments on CalAtlantic homes that were delivered in that period. This was partially offset by higher construction costs and increased sales incentives.

Selling, general and administrative expenses were $779.0 million in the six months ended May 31, 2019, compared to $689.6 million in the six months ended May 31, 2018. As a percentage of revenues from home sales, selling, general and administrative expenses improved slightly to 8.9% in the six months ended May 31, 2019, from 9.0% in the six months ended May 31, 2018, due to improved operating leverage as a result of an increase in home deliveries.

Other homebuilding revenue, gross margin on land sales, homebuilding equity in earnings (loss) from unconsolidated entities and homebuilding other income (expense), net, totaled a loss of $34.3 million in the six months ended May 31, 2019, compared to earnings of $172.0 million in the six months ended May 31, 2018. Homebuilding equity in earnings (loss) from unconsolidated entities was $5.9 million in the six months ended May 31, 2019, compared to ($26.8) million in the six months ended May 31, 2018. In the six months ended May 31, 2019, Homebuilding equity in earnings from unconsolidated entities was primarily attributable to the Company's share of net operating income from one of its homebuilding unconsolidated entities. In the six months ended May 31, 2018, Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of valuation adjustments related to assets of a homebuilding unconsolidated entity and the Company's share of net operating losses from its unconsolidated entities. Homebuilding other income (expense), net, was ($47.7) million in the six months ended May 31, 2019, compared to $179.9 million in the six months ended May 31, 2018. Homebuilding other expense, net in the six months ended May 31, 2019 was primarily due to a one-time loss of $48.9 million from the consolidation of a previously unconsolidated entity. In the six months ended May 31, 2018, Homebuilding other income, net, was primarily related to a gain on the sale of an 80% interest in one of Homebuilding's strategic joint ventures, Treasure Island Holdings.

Homebuilding interest expense was $164.3 million in the six months ended May 31, 2019 ($157.5 million was included in costs of homes sold, $1.0 million in costs of land sold and $5.9 million in other income (expense), net), compared to $127.1 million in the six months ended May 31, 2018 ($120.2 million was included in costs of homes sold, $1.4 million in costs of land sold and $5.4 million in other income (expense), net). Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries. Prior year's interest expense was favorably impacted by purchase accounting related to the CalAtlantic acquisition.

During the six months ended May 31, 2018, the Company recorded $128.1 million of acquisition and integration costs related to CalAtlantic.

Financial Services

Operating earnings for the Financial Services segment were $84.2 million in the six months ended May 31, 2019 (which included $75.2 million of operating earnings and an add back of $9.1 million of net loss attributable to noncontrolling interests), compared to $81.6 million in the six months ended May 31, 2018. Operating earnings increased primarily due to improvement in the mortgage business as reductions in general and administrative expenses more than offset the decrease in retail origination volume, as a result of the sale of substantially all of our retail mortgage business in the first quarter 2019. This was offset by a decrease in the operating earnings of our title business due to a decrease in retail closed orders as a result of the sale of a majority of the retail agency business and title insurance underwriter in the first quarter of 2019. This decrease in retail volume was partially offset by an increase in captive business volume and a decrease in general and administrative expenses.

Multifamily

Operating earnings for the Multifamily segment were $2.9 million in the six months ended May 31, 2019 (which included

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