Lennar (LEN) is indicated slightly higher premarket after reporting better than expected first quarter results. The nation's second largest homebuilder has now beat on the top and bottom line five quarters in a row.
Adjusted earnings rose to $0.59 versus $0.58 last year. Revenue rose 17% to $2.3 billion while deliveries rose 13% to 5,453 homes. Homebuilding gross margin fell 150 basis points to 21.1%, primarily due to an increase in land and construction costs per home.
Looking at the leading indicators, new orders of homes rose 12% to nearly 6,500 while the value of orders rose 16% to $2.4 billion. The backlog of over 9,000 homes was up 18% while the value was up 24% to $3.5 billion.
On the call, Lennar will update guidance for fiscal 2017: Lennar previously guided for 28.5-29.0K deliveries (+8% at midpoint), an average selling price of $365-370K (from $361K in FY16); gross margin 22.0-22.5% versus 23% in FY16 and and operating margin of 13% with operating cash flow similar to 2016.
The company closed its $643 million cash acquisition of WCI Communities during the quarter.
"Since November we have seen a combination of renewed optimism, wage and job growth, and consumer confidence. As a result, our homebuilding operations have gone from slow and steady to a faster than expected sales pace throughout our first quarter. In this environment of accelerating sales pace, together with limited land and labor, and tight inventory particularly at the lower price points, we believe we are positioned for increased pricing power and solid earnings going forward."
Homebuilders have outperformed this year (ITB +17% versus SPY +6%). The sector fits quite nicely into what has 'worked' since the election. Homebuilders are entirely domestic and benefit from higher consumer confidence. The housing cycle continues to age well as demand remains strong. Meanwhile, rates haven't taken off. The value proposition to buy versus rent remains strong in most markets where rent has soared. Homebuilders are salivating at the housing production deficit and the pent-up demand from millennials.
February Existing Homes Sales data will be released tomorrow morning while New Home Sales will be released on Thursday. KB Home (KBH) will report on Thursday afternoon.
Lennar has a ~$12 billion market cap and trades at ~1.7x book value. The sector trades at ~1.4x on average.
The stock is near 2015 highs after having risen ~23% year-to-date.