Lennar Navigating Fluctuating Interest Rate Environment Well

Image: Lennar has been a strong performer since the beginning of 2023.

By Brian Nelson, CFA

On June 17, homebuilder Lennar (LEN) reported better than expected second quarter results for fiscal 2024. Total revenues increased 9%, while diluted earnings per share leapt to $3.45 in the quarter from $3.01 in the same period a year ago. New orders jumped 19%, to 21,293 homes, while the firm’s backlog stood at 17,873 homes with a dollar value of $8.2 billion. Deliveries in the quarter increased 15%, to 19,690 homes. Its average sales price, net of incentives, per home delivered came in at $426,000 in the second quarter, while its homebuilding gross margin was up 10 basis points from last year, to 22.6%.

Management talked about the market backdrop in the press release:

We are pleased to report another strong quarter against the backdrop of evolving market conditions as interest rates rose for most of the quarter and then subsided as the quarter closed. Although affordability continued to be tested by interest rate movements and simultaneously challenged consumer sentiment, purchasers remained responsive to increased sales incentives, resulting in a 19% increase in our new orders and a 15% increase in our deliveries year over year. 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. 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 ended the quarter with ~$2.2 billion in senior notes and other debts payable and ~$3.6 billion in cash and cash equivalents, good for a nice net cash position on the balance sheet. The company bought back $603 million of its common stock in the quarter, while it repaid $554 million in senior notes. It ended the quarter with $5.8 billion in overall liquidity. 

Looking to the third quarter of fiscal 2024, Lennar expects both new orders and deliveries in the range of 20,500-21,000, with an average sales price of $420,000-$425,000 and a gross margin percentage on home sales of ~23%. We liked the quarterly update from Lennar, and while we won’t be adding this homebuilder to any newsletter portfolio, we’re interpreting its performance as another positive data point regarding the macroeconomic environment.

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