Lennar (LEN 47.11, +4.22, +9.84%) is leading homebuilders higher after the company conveyed a positive tone on its fourth quarter conference call this morning.
Lennar reported fourth quarter EPS, deliveries and orders below its own forecast.
On the call, management acknowledged that higher home prices and mortgage rates have continued to slow demand for new homes, but reiterated their view that the slowdown was natural and the housing market will bounce back given the positive fundamental backdrop.
Lennar guided for the yr/yr decrease in new orders to worsen in the first quarter (normalized for the CalAtlantic acquisition.)
Lennar increased incentives for home purchases but pulled them back in the face of higher quality traffic in December when rates pulled back, but that didn't translate to an improvement in orders during the seasonally slow month for home purchases.
Management is optimistic that consumer confidence and wage growth combined with lower mortgage rates will spur activity into the Spring Selling Season.
Lennar also guided first quarter gross margins below estimates. After sticking to its goal of delivering over 50,000 homes in fiscal 2019, management acknowledged that they are willing to sacrifice gross margin to keep pace on volume and maintain net/operating margins.
The lower end of the housing market is faring better than the high end.
The company is refocusing efforts on its core homebuilding business to increase efficiency. Lennar sold its Rialto investment and asset management platform, its Berkshire Hathaway real estate brokerage business and the majority of their retail title business along with their title insurance underwriter during the quarter.
Lennar was the third homebuilder in recent months to forgo guidance for fiscal 2019 as visibility remains limited. The industry is squarely focused on the Spring selling season that is just around the corner to get a better feel for how the market will take shape in 2019.
With the stock trading at 7x earnings estimates and ~1x book value, management spent $250 mln on buybacks during the quarter.
Lennar (LEN) +6.9% leading homebuilders (ITB) +2.7% higher: D.R. Horton DHI) +4.9%, KB Home (KBH) +3.6%, Toll Brothers (TOL) +2.6%, LGI Homes (LGIH) +2.5%.