Bloomberg News

Lennar Climbs as Second-Quarter Earnings Beat Estimates

June 23, 2011

(Updates with closing share price in the second paragraph and 12-month performance in final paragraph.)

June 23 (Bloomberg) -- Lennar Corp., the third-largest U.S. homebuilder by revenue, reported second-quarter profit that beat analysts’ estimates on higher house prices and rising earnings at its distressed-investing unit.

The shares rose 41 cents, or 2.3 percent, to $18.51 at 4:15 p.m. in New York Stock Exchange composite trading. It was the biggest gain in almost a month.

Net income was $13.8 million, or 7 cents a share, for the three months through May, compared with $39.7 million, or 21 cents, a year earlier, the Miami-based company said in a statement today. Analysts expected earnings of 4 cents a share, the average of 17 estimates in a Bloomberg survey.

U.S. homebuilders are being hurt by weak demand as unemployment hovers around 9 percent and foreclosures drive down prices for existing houses. Lennar has reported five straight quarterly profits amid the slump after cutting costs and generating more revenue from its Rialto Investments unit, which manages and trades distressed property assets.

“It was a nice, solid quarter,” Megan McGrath, a homebuilder analyst at MKM Partners LP in Stamford, Connecticut, said in a telephone interview. “It’s a flat housing market, yet they are still able to show some level of profitability. That’s not something a lot of builders are able to do.”

New-Home Sales

Purchases of new U.S. houses fell in May for the first time in three months, the Commerce Department said today. Sales dropped 2.1 percent to a 319,000 annual pace.

Lennar’s second-quarter home orders were little changed at 3,204, with the average price climbing to $245,000 from $240,000. The 2010 orders were boosted by a federal tax credit for homebuyers that required contracts be signed by April 30.

“While it’s now well-documented that the expected spring selling season of 2011 simply did not materialize, it is beginning to feel like the worst days of the housing market are getting behind us,” Chief Executive Officer Stuart Miller said during a conference call with analysts today.

Banks are unloading an increasing number of troubled assets, giving Rialto more opportunities, according to Miller.

“We’re underwriting a pipeline of new potential deals that is much larger than we’ve seen over the past quarters and we expect this activity to continue for some time,” he said.

Revenue Declines

Lennar’s total revenue fell to $764.5 million from $814.5 million in the second quarter of 2010. Home deliveries decreased to 2,682 from 2,912 a year earlier.

The company had an order backlog of 2,470 homes, 1 percent lower than a year earlier and 27 percent higher than the first quarter. Lennar’s cancellation rate remained at 17 percent.

The Rialto unit had operating earnings of $9.8 million, compared with $5.1 million a year earlier.

“Lennar has got one of the best homebuilding operations in the industry,” Michael G. Smith, an analyst with JMP Securities LLC, said in a telephone interview from San Francisco before the report. “Then you add to that this whole separate business that acts as a hedge against continuing weakness in housing.”

Lennar shares climbed 26 percent in the 12 months through yesterday, compared with a 7.5 percent advance in the 12-member Standard & Poor’s Supercomposite Homebuilding index.

--With assistance from Tim Barwell in London. Editors: Christine Maurus, Kara Wetzel

To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net; Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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