Lennar Corporation (LEN)
The last two years have been a rocky one for the real estate market and homebuilders. Considering the fact that the market basically fell off a cliff, it is not surprising that the rebound remains a work in progress. Sellers are still not receiving the most out of the sale of their homes and buyers are looking for ways to pay for properties as unemployment rages out of control. Lennar is definitely no stranger to the ups and downs of the housing market. The third-largest US homebuilder reported a narrower-than-expected quarterly loss today. How has Lennar been able to overcome some of the hurdles that still exist in a shaky economy? Does the company’s recent performance indicate that it will be smooth sailing from here on out?
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Stock Analysis
It was just three short months ago that Lennar stunned investors and reported its first profit in nearly three years. At that time, investors were more than impressed with the company’s performance following one of the worst declines in the housing market. The first-quarter of 2010 for Lennar was not as impressive, but still showed some signs of improvement. The net loss in the three months ended Feb. 28 was $6.5 million, or 4 cents a share, compared with a loss of $155.9 million, or 98 cents, a year earlier. Analysts were actually expecting a loss of 34 cents a share. The housing market and economy are still not as stable as they should be, so what factors helped the company cut some of its losses?
The government’s extension of its incentive program for new and existing homebuilders helped inch up sales at Lennar, but not as much as expected. High unemployment and concerns about the job market have prevented a large percentage of potential homebuyers from capitalizing on the incentive program. The deadline for the tax credit is quickly approaching, so many homebuilders are hoping that the usually popular spring shopping season will lure buyers in and increase sales. A reduction in construction costs and lower sales incentives was also credited for the better-than-expected results. Sales incentives offered to homebuyers improved to 12.5 percent of home sales revenue, down from 17.1 percent in the year-earlier quarter. Stuart Miller, President and Chief Executive Officer of Lennar Corporation said, “Our focus on reducing construction costs combined with lower sales incentives led to a 1,270 basis point improvement in gross margin on homes sales to 19.2%.”
Lennar has been consistently making progress over the last couple of quarters. Until things become more stable in the economy, the homebuilder is still subject to the ups and downs that uncertainty forces on the market. Despite the bumpy road the company has traveled, it has remained positive about its outlook. Mr. Miller reiterated that the company is on track to achieve profitability in fiscal 2010. Lennar is placing a lot of bets on its land acquisition strategy. Last month, the builder closed a deal to buy or obtain an option on more than 2,700 home sites in 38 Florida communities. The company has been taking advantage of low prices and promises of big returns. Hopefully this will help Lennar continue to exceed expectations in the coming months.
Other Stocks in the News
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- General Mills 3Q Profit Climbs – General Mills Inc. (GIS: Charts, News, Offers) reported a 15 percent increase in earnings and a 3 percent increase in net sales in its fiscal third quarter.
- ConocoPhillips to Cut Lukoil Stake – ConocoPhillips (COP: Charts, News, Offers) said it plans to halve its 20 percent stake in Russian oil major LUKOIL.
