Lennar shares slide 4% as new orders and margins slide
2min read Lennar Corporation reported strong third-quarter earnings, with adjusted earnings per share (EPS) of $3.90, surpassing the consensus estimate of $3.65. Revenue for the quarter also beat expectations, coming in at $9.4 billion compared to the $9.173 billion anticipated by analysts. Despite this outperformance on both EPS and revenue, the company's stock showed mixed reactions, reflecting concerns about future margin pressure and other market dynamics.
Key metrics from the quarter highlight a solid operational performance. Lennar saw a 5% year-over-year increase in new orders to 20,587 homes, although this was slightly below the estimated 20,827. Deliveries rose by 9%, reaching 21,516 homes, while the average sales price per home delivered was $422,000, a decline from $448,000 in the same period last year. The gross margin on home sales was 22.5%, down from 24.4% a year earlier and below the 23% analysts had expected, suggesting some pressure from rising land costs and a need for increased sales incentives.
Lennar's management provided a positive outlook on the broader housing market, noting that strong employment, a chronic shortage of housing supply, and solid demand driven by household formation continue to create a favorable environment for homebuilders. The company acknowledged that affordability remains a challenge, but highlighted that buyers have been responsive to increased incentives. Importantly, Lennar expects the Federal Reserve’s recent interest rate cuts to enhance affordability and boost demand further, potentially leading to an even stronger housing market.
In terms of guidance, Lennar projects fourth-quarter new orders to be between 19,000 and 19,300, with deliveries ranging from 22,500 to 23,000 homes. The average sales price is expected to be around $425,000. The company anticipates that gross margins on home sales will remain flat compared to the third quarter, and selling, general, and administrative (SG&A) expenses as a percentage of home sales will be in the range of 6.7% to 6.8%. This guidance was generally in line with analyst expectations, though the flat margin outlook may have contributed to some investor caution.
Lennar also emphasized its strong balance sheet and continued focus on capital allocation. The company repurchased $519 million of its common stock during the quarter and maintained a cash position of $4.0 billion, with no outstanding borrowings under its $2.2 billion revolving credit facility. Lennar’s homebuilding debt to total capital stood at 7.6%, reflecting a conservative financial posture that positions the company well for future growth opportunities.
From an operational standpoint, Lennar's management discussed ongoing improvements in production efficiency and inventory management. The company has reduced its cycle time by 23% year over year to 140 days, which has positively impacted production times and inventory turnover. Additionally, Lennar continues to migrate toward a "land light" strategy, reducing its supply of owned homesites to 1.1 years while increasing its controlled homesite percentage to 81%.
Overall, Lennar's third-quarter performance and forward guidance underscore its ability to navigate a challenging market environment while maintaining strong operational and financial discipline. However, the flat margin outlook and potential headwinds from rising land costs and affordability concerns suggest that the company may face continued pressure as it heads into the final quarter of the year. Nonetheless, Lennar’s robust balance sheet and strategic initiatives should provide a solid foundation for sustained growth.