By Helen Chernikoff
NEW YORK (Reuters) - Lennar Corp, the
third-biggest homebuilder in the United States, reported a
higher-than-expected quarterly profit and a decline in orders
that was less severe than Wall Street had feared, sending
shares up more than 8 percent and boosting homebuilder stocks
across the board.
Lennar's orders fell sharply following the expiration of a
U.S. tax credit that boosted home sales last spring. But the
Lennar order decline was not as grim as the decline for the
rest of the industry.
"This was going to be the bad quarter, with the end of the
tax credit, so there will probably be a relief rally that the
numbers weren't that bad," FBN Securities analyst Joel Locker
Orders fell 15 percent to 2,624 homes due to the April 30
expiration of the tax credit, which induced homebuyers to
accelerate their purchases. The decline was exacerbated by
unemployment and associated foreclosures that present a cheap
alternative to new home purchases, the company said in a
Orders are an indicator of future sales, because
homebuilders do not recognize revenue until they deliver a
KeyBanc analyst Ken Zener, who has a "buy" rating on
Lennar, had expected a 27 percent decline in orders.
Lennar owed its third-quarter orders to its operations in
"the most desirable areas of the most desirable markets," such
as the mid-Atlantic region; Raleigh, North Carolina; and parts
of California, Chief Executive Stuart Miller told analysts on a
Unlike the housing market more broadly, home prices and
demand are stabilizing in those markets, which offer robust job
growth and local economies, he said.
Nationally, new home sales fell in the mid-20 percent range
during Lennar's third quarter compared with Lennar's 15 percent
MACHINE FOR CAPITAL
The company's distressed land acquisition subsidiary,
Rialto, contributed $8 million to the quarter's profits and
will continue to do so in future quarters, wrote Raymond James
analyst Buck Horne in a note to clients.
Rialto is attracting investor interest, Miller said.
"There is a lot of capital to invest but it's not easy to
find investment opportunities," he said. "This affords us the
opportunity to be a machine for capital."
For the third quarter ended Aug. 31, Lennar posted earnings
of $30 million, or 16 cents a share, compared with a
year-earlier loss of $171.6 million, or 97 cents per share.
Excluding a gain of 3 cents per share due to recoveries
from a reserve the company had set aside to cover claims
against it for use of faulty Chinese drywall, Lennar earned 13
cents per share, solidly beating analysts' expectations of a
profit of 6 cents per share, according to Thomson Reuters
Revenue rose 14 percent to $825 million, topping Wall
Street's expectations of $777.5 million.
Homebuilders had hoped a sales rebound earlier this year
reflected improving fundamental demand rather than just the tax
Last week, Beazer Homes USA Inc cut its full-year
order outlook after the expiration of the tax credit, saying
potential buyers remain cautious amid high unemployment and
"It's still sluggish out there," Miller said on the call.
September has seen a slight pickup in traffic, but even that is
"no cause for a sigh of relief."
On Tuesday, the government will release August's housing
starts and permits data, which will likely underscore the
recovery's fragility. Economists surveyed by Reuters said
starts likely rose slightly, while permits were little changed.
Shares of Lennar ended 8.2 percent higher at $15.14 on the
New York Stock Exchange Monday, while the Dow Jones U.S.
Home Construction Index climbed 4.5 percent.
At Friday's close, the shares had lost 36 percent of their
value since hitting a 52-week high in April.
(Additional reporting by A. Ananthalakshmi in Bangalore;
Editing by Gerald E. McCormick, Derek Caney and Matthew Lewis)