It has been about a month since the last earnings report for Lennar (LEN). Shares have added about 3% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Lennar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important drivers.
Lennar's Q2 Earnings Miss, Revenues Top, New Home Orders Up Y/Y
Lennar Corporation reported mixed results for the second quarter of fiscal 2025, wherein its adjusted earnings missed the Zacks Consensus Estimate while total revenues topped the same. On the contrary, year over year, both metrics tumbled.
The quarter’s performance was adversely impacted by the softness in the housing market due to ongoing affordability challenges and a decline in consumer confidence. To counter the affordability issues, the company’s initiative of lowering average sales price (ASP) adversely impacted the revenue growth during the quarter.
However, the company is consistently executing strategies to counter the market uncertainties by driving housing starts, sales and closings to ensure long-term business efficiencies. Also, its efforts to incentivize sales to enable affordability are expected to drive volumes further and foster consumer confidence.
LEN’s Quarterly Numbers
Lennar’s adjusted earnings per share (EPS) (excluding mark-to-market gains on technology investments) of $1.90 missed the Zacks Consensus Estimate of $1.94 by 2.1%. In the year-ago quarter, the company reported an adjusted EPS of $3.38.
Total revenues of $8.38 billion topped the consensus mark of $8.24 billion by 1.6% but declined 4.4% year over year from $8.77 billion.
Segment Details of Lennar
Homebuilding: This segment’s revenues totaled $7.84 billion, down 6.4% from the prior-year quarter. Under the Homebuilding umbrella, home sales contributed $7.79 billion to total revenues, down 6.8% from a year ago. Land sales accounted for $43.2 million, up from $13.6 million in the prior-year quarter. The Other homebuilding unit contributed $12.4 million to homebuilding revenues, up from $9.7 million a year ago.
Home deliveries increased 2.2% to 20,131 units from 19,690 units in the prior-year quarter. The reported figure topped our model’s projection of 20,110 units for the quarter. The ASP of homes delivered was $389,000, down 8.7% from the year-ago figure due to continued weakness in the market. We predicted ASP to be $391,920 for the quarter.
New orders increased 6.1% from the year-ago quarter to 22,601 homes. However, the potential value of net orders fell year over year to $8.58 billion from $9.19 billion.
Backlog at the fiscal second-quarter end declined 13.1% from the year-ago quarter to 15,538 homes. Potential housing revenues from backlog decreased year over year to $6.48 billion from $8.23 billion.
The gross margin on home sales was 17.8% for the quarter, down 480 basis points (bps) year over year. Notably, the reported figure came above our projection of 17.5% for the quarter. The decline was mainly due to decreased revenues per square foot and increased land costs year over year. This was partially offset by a decline in construction costs as LEN continued to focus on construction cost savings.
SG&A expenses, as a percentage of home sales, increased 130 bps to 8.8% due to higher marketing and selling expenses and lower revenues.
Financial Services: The segment’s revenues grew 5.8% year over year to $298.1 million from $281.7 million. Operating earnings for the quarter also increased to $157.3 million from $147 million a year ago.
Lennar Multi-Family: Revenues of $230.3 million in the segment were significantly up 131.5% from the prior-year quarter. The segment registered an operating loss of $14.8 million for the quarter compared with a loss of $20.5 million a year ago.
Lennar Other: The segment’s revenues totaled $5.2 million, up from $3.3 million a year ago. Its operating loss was $52.9 million compared with a loss of $29 million a year ago.
Lennar’s Financials
At the fiscal second-quarter end, Lennar had homebuilding cash and cash equivalents of $1.17 billion, down from $4.66 billion at the end of fiscal 2024. LEN had $400 million worth of outstanding borrowings under the $3 billion revolving credit facility, with $5.4 billion in liquidity.
The total homebuilding debt was $2.79 billion as of the fiscal second-quarter end, up from $2.26 billion at the fiscal 2024 end. Homebuilding debt to capital was 11%, up from 7.5% at the fiscal 2024-end.
LEN repurchased 9.9 million shares for $1.22 billion during the first six months of fiscal 2025.
Lennar Unveils Q3 Guidance
For the third quarter of fiscal 2025, the company expects deliveries to be in the range of 22,000-23,000 homes, depicting growth from 21,516 homes delivered in the year-ago period. LEN expects the ASP of the delivered homes to be in the range of $380,000-$385,000 compared with $422,000 reported a year ago.
The gross margin on home sales is expected to be about 18%, down from 22.5% reported a year ago. SG&A expenses, as a percentage of home sales, are likely to be in the range of 8-8.2%, up year over year from 6.7%.
New orders are likely to be within 22,000-23,000 units, up from 20,587 homes reported a year ago.
Financial Services operating earnings are expected to be between $175 million and $180 million, up from $144 million reported a year ago.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -23.12% due to these changes.
VGM Scores
Currently, Lennar has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for value investors.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lennar has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Lennar Corporation (LEN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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