UPDATE: Lennar 2Q Loss Widens, But Sales Help Revenue
26 June 2009 - 12:53AM
Dow Jones News
Creative sales strategies helped Lennar Corp. (LEN) blow through
unsold inventory and easily beat the Street's revenue estimate, but
it wasn't enough to narrow the quarter's loss. The builder also now
has fewer homes to sell going forward.
In its fiscal second quarter, Lennar, the nation's
fourth-largest builder by annual closings, saw its loss widen on
increased write-downs and charges. For the period ended May 31, it
posted a loss of $125.2 million, or 76 cents a share, compared with
a year-earlier loss of $120.9 million, or 76 cents a share. There
were 3.9% more shares outstanding in the more recent period. The
latest results included 65 cents in write-downs and tax-valuation
allowance charges, compared with 60 cents a year earlier.
Revenue dropped 21% to $891.9 million, though that beat the $597
million analysts surveyed by Thomson Reuters had expected.
That helped send the Miami-based builder's stock soaring: After
being up more than 4% in the pre-market, shares recently traded up
98 cents, or 12.5%, at $8.80, compared with 3.17% for the Dow Jones
US Home Construction Index. All the major builders saw gains
topping 1.6%.
The builder said liquidity was aided by shaving completed,
unsold inventory by 53% to 626 homes from 1,321 homes at Feb. 28.
The industry's average is 1,365 homes, with 817 of them finished,
according to JPMorgan.
Known as speculative inventory, unsold homes have dogged
builders during the downturn because they typically require
extensive, profit-eroding specials - such as free upgrades or
tropical vacations - to catch buyers' eyes. Lennar has shown itself
as one of the more creative marketers: Its specials have included
no-money-down and a 3.625% mortgage rate - one of the industry's
lowest for the loan's life, instead of a "teaser" for an
introductory period before it resets higher. More recently, it
tried a "sealed-bid home auction" that let buyers help set the
price.
Such specials appear to have been effective, given that builders
face tough competition from foreclosures which can sell for bargain
prices. The cancellation rate came in at an impressive 15%, down
from 22% in 2008's second quarter. The rate, which compares with an
industry average of 25%, is well below the 33% the builder reported
at the end of 2006, according to JPMorgan.
But the deals came with a cost: Incentives, which were some 21%
of the average selling price in the quarter, according to UBS, and
"will likely remain elevated as the company focuses on maintaining
its sales pace."
The dramatic reduction in front doors leaves the builder with
fewer homes to sell at a time when builders have slowed down
construction in response to the worst downturn in decades. That
could hurt Lennar as it tries to lure first-time buyers looking to
tap a federal tax credit of up to $8,000 for deals before Dec. 1.
Such contracts need to be inked soon to close on time.
Meanwhile, the company recorded $99 million in pre-tax
impairments and option write-offs, well below Credit Suisse's $428
million estimate.
That doesn't ease the firm's prediction of pain going forward.
"We still expect $1.1 billion in total future charges as we
continue to see significant risk from its joint venture holdings
and expect further pricing pressures will hurt land values."
-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193;
dawn.wotapka@dowjones.com
(Kerry Grace contributed to this report.)