3 highlights from Lennar’s second quarter results

Lennar Corporation, one of the largest homebuilders in the US, reported year-over-year earnings growth for the second quarter of 2024, despite a troubled real estate market domestically.

Lennar render (Image: Lennar) Render of a Lennar master-planned community near Miami, Florida, US. (Image: Lennar)

The company logged net earnings of US$954 million – a 9% increase from the same period last year – on total revenues of $8.8 billion, with new orders increasing 19%.

Lennar has $3.6 billion in cash and holds no borrowings from its $2.2 billion revolving credit facility. The company also repurchased $603 million of its common stock and repaid $554 million of senior notes in the second quarter.

1) Significant growth in new orders and deliveries

Lennar’s second quarter showed a notable increase in both new orders and home deliveries.

The 19% rise in new orders amounts to 21,293 homes, while the company delivered on 19,690 units; a 15% increase in home deliveries compared to the second quarter of 2023.

The company said it achieved growth despite fluctuating interest rates and strained affordability, and credited Lennar’s use of ‘pricing, incentives, and marketing strategies’.

Stuart Miller, executive chairman and co-CEO of Lennar, said, “Although affordability continued to be tested by interest rate movements and simultaneously

Lennar groundbreaking (Image: Lennar) Lennar representatives breaks ground on a golf clubhouse project in the US’ South. (Image: Lennar)

challenged consumer sentiment, purchasers remained responsive to increased sales incentives.

“The macroeconomic environment remained relatively consistent with employment remaining strong, housing supply remaining chronically short due to production deficits over a decade, and demand strength driven by strong household formation,” continued Miller. “We remained focused on consistent production pace driving sales pace, while using pricing, incentives, marketing spend and margin adjustment to enable consistent sales volume in a fluctuating interest rate environment.”

Lennar’s backlog stood at 17,873 homes valued at $8.2 billion, indicating a reliable pipeline for future sales. 

2) Margin, backlog, and turn rate are healthy

Lennar said it found success in reducing construction costs and announced a gross margin of 22.6% on home sales and maintained selling, general, and administrative expenses at 7.5% of home sales revenues.

Operational efficiency was also a highlight, said Lennar. The company reduced its cycle time to 150 days, improving its inventory turn rate to 1.6.

Jon Jaffe, co-CEO and president of Lennar, said, “Operationally, our starts pace and sales pace were 5.8 homes and 5.7 homes per community in the second quarter, respectively, as we continue to move closer to an even flow operating model.”

3) Lennar making strategic shift to ‘land light’ model, manufacturing

Lennar continued its strategic shift towards a “land light” model; a strategy that relinquishes land ownership to a third party, which provides control to the operational entity (Lennar, in this instance) through options and agreements.

Wolf Ranch 3D-printed homes in Texas (Image: Icon) Five separate Icon Vulcan 3D-printers at work on five separate houses in Lennar’s Wolf Ranch development in Georgetown, Texas, US. (Image: Icon)

“During the quarter, we continued the migration to our land light strategy,” said Jaffe. “This was evidenced by our year’s supply of owned homesites improving to 1.2 years from 1.7 years last year and our controlled homesite percentage increasing to 79% from 70% year over year.

“These results drove our return on inventory to 31.4%, a year-over-year improvement of 110 basis points,” he added.

Miller noted the company will continue to embrace an “ever-more focused manufacturing model for Lennar.” As recently as last month, the company announced a 3D-printed neighbourhood of 100 homes was nearing completion in Texas.

The focus on a production-first approach was a big aid to achieving the 5.7 sales pace per community and a starts pace of 5.8, Lennar said.

Outlook

Looking ahead, Lennar is optimistic about its future performance. The company expects to deliver between 20,500 and 21,000 homes in the third quarter with a gross margin of approximately 23%.

For the full year, Lennar aims to deliver 80,000 homes, maintaining consistent margins.

It’s impressive growth in a high-demand market that is battling historically inflated home prices against near-term elevated interest rates.

Miller concluded, “We have remained focused on our operating strategies, while at the same time being observant of current economic and market trends. This has positioned us particularly well as the economic environment continues to define itself throughout the complicated election year in 2024.

“We will continue to fortify our balance sheet with significant liquidity and operate from a position of strength, thus enabling us to continue to execute on our core strategies to drive strong cash flow and higher returns.”

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