Lennar Reports Second Quarter EPS of $1.65

MIAMI, June 15, 2020 /PRNewswire/ --

• Net earnings of $517.4 million, or $1.65 per diluted share, up from net earnings of $421.5 million, or $1.30 per diluted share, a 27% increase in earnings per share 
• Deliveries of 12,672 homes – consistent with prior year
• New orders of 13,015 homes – down 10%; new orders dollar value of $4.9 billion – down 16%
• Backlog of 17,975 homes – down 6%; backlog dollar value of $7.1 billion – down 8%
• Revenues of $5.3 billion – down 5%
• Homebuilding operating margins of $636.2 million, up from $608.3 million
• Gross margin on home sales of 21.6%, up from 20.1%
• S,G&A expenses as a % of revenues from home sales of 8.3%, compared to 8.4%
• Operating margin on home sales of 13.3%, up from 11.6%
• Financial Services operating earnings of $150.6 million (including a $61.4 million gain on deconsolidation), up from operating earnings of $62.5 million (net of noncontrolling interest)
• Multifamily operating loss of $0.6 million, compared to operating loss of $4.3 million
• Lennar Other operating loss of $18.0 million, compared to operating earnings of $1.8 million
• Homebuilding cash and cash equivalents of $1.4 billion
• No borrowings outstanding under the Company's $2.45 billion revolving credit facility
• Redeemed $300 million of 6.625% senior notes
• Homebuilding debt to total capital of 31.2%, compared to 38.3% last year

Lennar Corporation (NYSE: LEN and LEN.B), one of the nation's leading homebuilders, today reported results for its second quarter ended May 31, 2020. Second quarter net earnings attributable to Lennar in 2020 were $517.4 million, or $1.65 per diluted share, compared to second quarter net earnings attributable to Lennar in 2019 of $421.5 million, or $1.30 per diluted share.

Stuart Miller, Executive Chairman of Lennar, said, "The three months ended May 31st, our second quarter, have been a time of transition for both our company and our country. The backdrop of an unprecedented health crisis, significant business disruption and distressing social injustice has defined the past three months. Today we announce Lennar's financial results, which reflect both our determination to do well by operating an excellent company, while doing good by serving our Customers, our Associates, our Trade Partners, our Communities and our Shareholders.

"As the quarter began, we focused on the safety, health and well-being of our Customers, Associates, and Trade Partners as new orders stalled significantly from mid-March to the end of April, driven by COVID-19 and the economic shutdown. Accordingly, we slowed starts and land spend to preserve cash and protect our balance sheet.

"Business rebounded significantly in May, and by quarter's end, our total new orders declined by only 10%, and deliveries ended flat year-over-year. In sync with the market rebound, we resumed starts and land spend to match the improving market conditions, and this rebound has continued into the first two weeks of June.

"While unemployment increased throughout the quarter due to impacts from the COVID-19 pandemic, customers moved from rental apartments and from densely populated areas to purchase homes, and home sales grew steadily, as record-low interest rates and low inventory levels drove a favorable rebound in the homebuilding industry.

"With daily video meetings, our management team recast our business using technology and innovation to accelerate change and operate efficiently in these changing times. Years of change management were condensed into weeks as our management focus and determination drove our second quarter, bottom-line after-tax profit to $517.4 million, or $1.65 per diluted share, compared to $421.5 million, or $1.30 per diluted share year in the prior year."

Rick Beckwitt, Chief Executive Officer of Lennar, said, "New home sales strengthened across the country in all of our major markets during the last six weeks. A limited supply of both new and existing homes and an intense focus on construction costs drove our homebuilding gross margin in the second quarter to 21.6%, compared to 20.1% last year. At the same time, our focus on making our homebuilding platform more efficient resulted in an SG&A percentage of 8.3%, an all-time, second quarter low. In addition, our financial services business performed extremely well with second quarter earnings of $150.6 million, an all-time, quarterly high."

Jon Jaffe, President of Lennar, said, "We made significant progress towards becoming a land lighter company by reducing our years owned supply of homesites to 3.9 years from 4.5 at the end of last year's second quarter. Profitability and reduced land spend created significant cash flow, as we ended the quarter with $1.4 billion of cash on our balance sheet, $0 borrowed on our revolver and a homebuilding debt to total capital of 31.2% vs 38.3% last year.

"We also remained focused on managing our construction spend by working closely with our Trade Partners. Never has the partnership between our company and our Trade Partners been more important to our success, as we worked together to reduce costs in order to provide essential housing to our Customers and keep housing affordable while interest rates are at all time lows. We thank our Trade Partners for their help and cooperation in these most difficult times." 

Mr. Miller concluded, "While many parts of the economy are still waiting to open and rebound, the housing market has proven to be resilient in the current environment. We expect this trend to continue and for housing to be a significant driver of employment and rebound for the broader economy. In this context, we are re-instituting guidance for fiscal year 2020 and now expect our deliveries to be in the range of 50,500 – 51,000 homes with a gross margin on home sales of approximately 21.5% and a net margin on home sales of approximately 13.0%. A breakdown of our third and fourth quarters is included later in this release."

RESULTS OF OPERATIONS

THREE MONTHS ENDED MAY 31, 2020 COMPARED TO
THREE MONTHS ENDED MAY 31, 2019

Homebuilding

Revenues from home sales decreased 5% in the second quarter of 2020 to $4.9 billion from $5.2 billion in the second quarter of 2019. Revenues were lower primarily due to a 4% decrease in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, of 12,653 homes in the second quarter of 2020 were flat compared to 12,706 homes in the second quarter of 2019, as a result of the coronavirus (COVID-19) pandemic and the economic shutdown. The average sales price of homes delivered was $389,000 in the second quarter of 2020, compared to $407,000 in the second quarter of 2019. The decrease in average sales price primarily resulted from continuing to shift to lower-priced communities and regional product mix due to COVID-19 stay-at-home orders in certain higher priced markets.

Gross margin on home sales was $1.1 billion, or 21.6%, in the second quarter of 2020, compared to $1.0 billion, or 20.1% in the second quarter of 2019. The gross margin percentage on home sales increased primarily due to the Company's continued focus on reducing construction costs. Loss on land sales in the second quarter of 2020 was $23.5 million, primarily due to a write-off of costs as a result of Lennar not moving forward with a naval base development in Concord, California, northeast of San Francisco. Gross margin on land sales were $2.4 million in the second quarter of 2019.

Selling, general and administrative expenses were $407.2 million in the second quarter of 2020, compared to $435.7 million in the second quarter of 2019. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.3% in the second quarter of 2020, from 8.4% in the second quarter of 2019.

Financial Services

Operating earnings for the Financial Services segment were $150.6 million in the second quarter of 2020 (which included $147.3 million of operating earnings and an add back of $3.3 million of net loss attributable to noncontrolling interests) compared to $62.5 million in the second quarter of 2019 (which included $56.2 million of operating earnings and an add back of $6.3 million of net loss attributable to noncontrolling interests). Operating earnings increased due to an improvement in the mortgage business as a result of an increase in volume and margin, as well as reductions in loan origination costs and a $5.0 million gain on the sale of a servicing portfolio. Additionally, the Financial Services segment recorded a $61.4 million gain on the deconsolidation of a previously consolidated entity.

Other Ancillary Businesses

Operating loss for the Multifamily segment was $0.6 million in the second quarter of 2020, compared to $4.3 million ($3.9 million net of noncontrolling interest) in the second quarter of 2019. Operating loss for the Lennar Other segment was $18.0 million in the second quarter of 2020 primarily due to a $25.0 million write-down of assets held by Rialto legacy funds because of disruption in the capital markets as a result of COVID-19 and the economic shutdown. This compared to operating earnings of $1.8 million($2.2 million net of noncontrolling interest) in the second quarter of 2019.

RESULTS OF OPERATIONS

SIX MONTHS ENDED MAY 31, 2020 COMPARED TO
SIX MONTHS ENDED MAY 31, 2019

Homebuilding

Revenues from home sales increased 3% in the six months ended May 31, 2020 to $9.1 billion from $8.8 billion in the six months ended May 31, 2019. Revenues were higher primarily due to a 7% increase in the number of home deliveries, excluding unconsolidated entities. Despite new home deliveries in the second quarter of 2020 being consistent with the second quarter of 2019 as a result of COVID-19 and the economic shutdown, new home deliveries, excluding unconsolidated entities, increased to 22,966 homes in the six months ended May 31, 2020 from 21,508 homes in the six months ended May 31, 2019, as a result of an increase in home deliveries in all of Homebuilding's segments except Other. The average sales price of homes delivered was $395,000 in the six months ended May 31, 2020, compared to $408,000 in the six months ended May 31, 2019. The decrease in average sales price primarily resulted from continuing to shift to lower-priced communities and regional product mix due to COVID-19 stay-at-home orders in certain higher priced markets.

Gross margin on home sales was $1.9 billion, or 21.1%, in the six months ended May 31, 2020, compared to $1.8 billion, or 20.1% in the six months ended May 31, 2019. The gross margin percentage on home sales increased primarily due to the Company's continued focus on reducing construction costs. Loss on land sales in the six months ended May 31, 2020 was $23.8 million, primarily due to a write-off of costs as a result of Lennar not moving forward with a naval base development in Concord, California, northeast of San Francisco. Gross margin on land sales were $2.7 million in the six months ended May 31, 2019.

Selling, general and administrative expenses were $786.1 million in the six months ended May 31, 2020, compared to $779.0 million in the six months ended May 31, 2019. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.7% in the six months ended May 31, 2020, from 8.9% in the six months ended May 31, 2019.

Financial Services

Operating earnings for the Financial Services segment were $208.8 million in the six months ended May 31, 2020 (which included $194.6 million of operating earnings and an add back of $14.1 million of net loss attributable to noncontrolling interests), compared to $84.2 million in the six months ended May 31, 2019 (which included  $75.2 million of operating earnings and an add back of $9.1 million of net loss attributable to noncontrolling interests). Operating earnings increased due to an improvement in the mortgage and title businesses as a result of an increase in volume and margin, as well as reductions in loan origination costs and a $5.0 million gain on the sale of a servicing portfolio. Additionally, the Financial Services segment recorded a $61.4 million gain on the deconsolidation of a previously consolidated entity.

Other Ancillary Businesses

Operating earnings for the Multifamily segment were $1.1 million in the six months ended May 31, 2020, compared to $2.5 million ($2.9 million net of noncontrolling interest) in the six months ended May 31, 2019. Operating loss for the Lennar Other segment was $17.1 million in the six months ended May 31, 2020 primarily due to a $25.0 million write-down of assets held by Rialto legacy funds because of disruption in the capital markets as a result of COVID-19 and the economic shutdown. This compared to operating earnings of $4.9 million ($5.2 million net of noncontrolling interest) in the six months ended May 31, 2019.

Tax Rate

For the six months ended May 31, 2020 and May 31, 2019, we had a tax provision of $192.8 million and $220.2 million, respectively, which resulted in an overall effective income tax rate of 17.4% and 25.0%, respectively. The reduction in the overall effective income tax rate is primarily due to the extension of the new energy efficient home tax credit during the first quarter of 2020.

Liquidity

At May 31, 2020, the Company had $1.4 billion of Homebuilding cash and cash equivalents and no outstanding borrowings under its $2.45 billion revolving credit facility, thereby providing total Homebuilding liquidity of $3.85 billion.

Debt Transaction

In May 2020, the Company redeemed $300 million aggregate principal amount of its 6.625% senior notes due May 2020. The redemption price, which was paid in cash, was 100% of the principal amount plus accrued but unpaid interest.

2020 Core Earnings Guidance

About Lennar

Lennar Corporation, founded in 1954, is one of the nation's leading builders of quality homes for all generations. Lennar builds affordable, move-up and active adult homes primarily under the Lennar brand name. Lennar's Financial Services segment provides mortgage financing, title and closing services primarily for buyers of Lennar's homes and, through LMF Commercial, originates mortgage loans secured primarily by commercial real estate properties throughout the United States. Lennar's Multifamily segment is a nationwide developer of high-quality multifamily rental properties. Len^X, formerly known as Lennar Ventures, drives Lennar's technology, innovation and strategic investments. For more information about Lennar, please visit www.lennar.com.

Note Regarding Forward-Looking Statements: Some of the statements in this press release are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, including statements relating to the homebuilding market and other markets in which we participate. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Accordingly, these forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those anticipated by the forward-looking statements. Important factors that could cause such differences include the potential continuing negative impact of the ongoing coronavirus (COVID-19) pandemic, the duration, impact and severity of which is highly uncertain; slowdowns in real estate markets in regions where we have significant Homebuilding or Multifamily development activities; increases in operating costs, including costs related to construction materials, labor, real estate taxes and insurance, which exceed our ability to increase prices, both in our Homebuilding and Multifamily businesses; reduced availability of mortgage financing or increased interest rates; decreased demand for our homes or Multifamily rental apartments; natural disasters or catastrophic events for which our insurance may not provide adequate coverage; our inability to successfully execute our strategies, including our land lighter strategy; a decline in the value of the land and home inventories we maintain and resulting possible future writedowns of the carrying value of our real estate assets; unfavorable losses in legal proceedings; conditions in the capital, credit and financial markets; changes in laws, regulations or the regulatory environment affecting our business, and the risks described in our filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended November 30, 2019. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

A conference call to discuss the Company's second quarter earnings will be held at 11:00 a.m. Eastern Time on Tuesday, June 16, 2020. The call will be broadcast live on the Internet and can be accessed through the Company's website at www.lennar.com. If you are unable to participate in the conference call, the call will be archived at www.lennar.com for 90 days. A replay of the conference call will also be available later that day by calling 203-369-0154 and entering 5723593 as the confirmation number.

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SOURCE Lennar Corporation