Lennar (LEN -1.05%), a leading U.S. homebuilder, released its fiscal fourth-quarter earnings on Dec. 18. The company reported earnings per share (EPS) of $4.03, which fell short of the $4.15 that analysts had anticipated. Revenue stood at $9.9 billion, below the projected $10.06 billion. The results reflected challenges from higher mortgage rates, which affected housing affordability and demand. However, despite those headwinds, Lennar did display resilience.
| Metric | Fiscal Q4 2024 | Fiscal Q4 2024 Analysts' Estimate | Fiscal Q4 2023 | % Change YOY |
|---|---|---|---|---|
| EPS (diluted, adjusted) | $4.03 | $4.15 | $5.17 | (22%) |
| Revenue | $9.9 billion | $10.06 billion | $11.0 billion | (9.3%) |
| Gross margin on home sales | 22.1% | N/A | 24.2% | (210 basis points) |
| New orders (homes) | 16,895 | N/A | 17,366 | (2.7%) |
Source: Analysts' estimates for the quarter provided by FactSet.
Overview of Lennar's Business
Lennar operates primarily in homebuilding, generating 95% of its revenue from this segment in 2023. It maintains a substantial market presence across multiple U.S. regions. Lennar's current business focus includes a strategic move to a land-light approach, which involves controlling land through options rather than ownership. This strategy helps manage risks and provides the company with flexibility to adapt to market changes.
The company's critical success factors include its ability to manage operational efficiency and control costs, which are essential as it navigates the fluctuating costs of materials and labor. Lennar also emphasizes technological innovation and strategic investments as a means to enhance efficiencies, such as its efforts to improve the mortgage loan origination process.
Notable Quarter Achievements
During the quarter, which ended Nov. 30, Lennar delivered 22,206 homes, down 7% from 23,931 in the prior-year period. Its gross margin on home sales was 22.1%, down from 24.2% in the previous year. The average sales price also declined slightly due to its use of additional incentives aimed at stimulating demand. Lennar's expenses as a percentage of revenue slightly increased to 7.2% due to reduced leverage. However, the company maintained a high level of overall cost management and financial stability.
The land-light strategy continues to be a significant aspect of Lennar's operations. It improved its supply of owned homesites to 1.1 years from 1.4 years, with 82% of homesites now controlled through options.
Rising mortgage rates posed a significant challenge for Lennar this quarter. Its financial services segment recorded a decline in operating earnings, with Executive Chairman Stuart Miller attributing much of this shortfall to increased rates that affected home affordability and the sales pace. Incentives were necessary to maintain sales volumes, which placed additional pressure on margins.
Looking Ahead
For the upcoming quarter, Lennar forecasts delivering between 17,000 and 17,500 homes, with a target of 86,000 to 88,000 for fiscal 2025. Management anticipates the gross margin in the first quarter will land between 19% and 19.25%. Additionally, it is preparing for its acquisition of Rausch Coleman Homes, which is expected to close in Q1 2025, and which will enhance its homebuilding capacity.
Lennar continues to emphasize its asset-light strategies and technological investments as tools to drive future efficiencies. Investors are advised to monitor these strategies, especially given the backdrop of shifting interest rates and economic conditions influencing the housing market. Management remains committed to its volume-based strategy, with a focus on affordability to address the supply gap in the market.
