Lennar Reports Second Quarter EPS of $0.21

MIAMI, June 24 /PRNewswire-FirstCall/ --

• Revenues of $814.5 million – down 9%
• Net earnings (loss) attributable to Lennar of $39.7 million compared to ($125.2) million
• EPS of $0.21 – compared to loss per share of $0.76
• Lennar Homebuilding operating earnings (loss) of $29.5 million compared to ($116.5) million
• Gross margin on home sales of 20.6%:
  • Improved 1,100 basis points from Q2 2009
  • Improved 140 basis points from Q1 2010
• Operating margin on home sales of 6.7%:
  • Improved 1,130 basis points from Q2 2009
  • Improved 330 basis points from Q1 2010
• S,G&A expenses as a % of revenues from home sales of 13.9%
  • Improved 40 basis points from Q2 2009
  • Improved 190 basis points from Q1 2010
• Valuation adjustments were $6.1 million – down from $99.1 million
• Lennar Financial Services operating earnings of $13.7 million
• Rialto Investments operating earnings totaled $5.1 million (net of $9.6 million of net earnings attributable to noncontrolling interests)
• Deliveries of 2,912 homes – down 8% from Q2 2009; up 45% from Q1 2010
• New orders of 3,207 homes – down 10% from Q2 2009; up 24% from Q1 2010
• Cancellation rate of 17%
• Backlog of 2,499 homes – up 21%
• At May 31, 2010, Lennar Homebuilding cash and cash equivalents and restricted cash totaled $1.2 billion
• Issued $250 million of 6.95% senior notes due 2018 and $276.5 million of 2.00% convertible senior notes due 2020
• Completed the repurchase of $289.4 million aggregate principal amount of the 5.125% senior notes due October 2010, 5.95% senior notes due 2011 and 5.95% senior notes due 2013 through a tender offer
• Lennar Homebuilding debt to total capital, net of Lennar Homebuilding cash and cash equivalents, of 42.2%

Lennar Corporation (NYSE: LEN and LEN.B), one of the nation’s largest homebuilders, today reported results for its second quarter ended May 31, 2010. Second quarter net earnings attributable to Lennar in 2010 were $39.7 million, or $0.21 per diluted share, compared to second quarter net loss attributable to Lennar of $125.2 million, or $0.76 per diluted share, in 2009.

Stuart Miller, President and Chief Executive Officer of Lennar Corporation, said, “During the second quarter, we continued to see a housing market that was trying to stabilize.  As expected, this stabilization process was impacted by the expiration of the Federal homebuyer tax credit at the end of April.  As a result, our new sales orders for the quarter were down 10% from the prior year, with the entire decline coming in the month of May.  While we were disappointed with the slow down in new orders in May, we believe that this will be temporary and that the market will improve in the second half of 2010.  The tax credit expiration accelerated sales activity to the pre-May period and it may take a couple of months for demand to rebuild, driven by tremendous home price affordability and historically low interest rates.”

Mr. Miller continued, “We have remained focused on improving our core business and returning our company to profitability in 2010, and are very pleased to report earnings per share of $0.21 for our second quarter.  Over the past several years, we have made great strides in lowering our construction costs and repositioning our product offering to target first-time and value-focused homebuyers.  We narrowed our focus to concentrate on generating strong operating margins and became less focused on driving volume. We have made significant progress on right-sizing our business and have aggressively reduced our overhead structure.  As a result of implementing these strategies, our operating margin improved to 6.7%, the highest margin since the third quarter of 2006.”

“Along with the improvement in our core business, our Rialto Investments segment has already started to contribute to our bottom line results. During the second quarter, our Rialto Investments segment generated $5 million of operating earnings primarily from the FDIC loan portfolios acquired in the first quarter.  We expect this segment to be a growing component of our operating earnings in the future.”

“During the second quarter, we also executed several capital market transactions which strengthened our balance sheet and improved our liquidity. We issued $250 million of 6.95% senior notes due 2018 and $277 million of 2.00% convertible senior notes due 2020, and repurchased $289 million aggregate principal amount of our senior notes due in 2010, 2011 and 2013 through a tender offer.  This enabled us to push out our near-term debt maturities, while improving our liquidity to $1.2 billion of cash and restricted cash.”

Mr. Miller concluded, “We have achieved year-to-date profitability through our second quarter.  Although challenges still remain in the housing market, we believe that our core businesses are on the right track to achieving sustainable profitability.  With our strong, liquid balance sheet, we are in excellent position to capitalize on future high-return investment opportunities.”

RESULTS OF OPERATIONS

THREE MONTHS ENDED MAY 31, 2010 COMPARED TO THREE MONTHS ENDED MAY 31, 2009

Lennar Homebuilding

Revenues from home sales decreased 12% in the second quarter of 2010 to $694.8 million from $788.6 million in 2009.  Revenues were lower primarily due to an 8% decrease in the number of home deliveries, excluding unconsolidated entities, and a 5% decrease in the average sales price of homes delivered.  New home deliveries, excluding unconsolidated entities, decreased to 2,902 homes in the second quarter of 2010 from 3,138 homes last year. The average sales price of homes delivered decreased to $240,000 in the second quarter of 2010 from $251,000 in the same period last year, primarily due to product mix as fewer deliveries occurred in the Company’s Homebuilding West segment. Sales incentives offered to homebuyers as a percentage of home sales revenue improved to 11.5% in the second quarter of 2010, from 17.3% in the second quarter of 2009 and 12.5% in the first quarter of 2010.  

Gross margins on home sales were $143.4 million, or 20.6%, in the second quarter of 2010, compared to gross margins on home sales of $76.1 million, or 9.6%, in the second quarter of 2009, which included $34.6 million of valuation adjustments. Gross margin percentage on home sales improved compared to last year primarily due to a reduction in valuation adjustments and reduced sales incentives offered to homebuyers as a percentage of revenues from home sales.

Selling, general and administrative expenses were reduced by $15.7 million, or 14%, in the second quarter of 2010, compared to the same period last year, primarily due to reductions in legal and occupancy expenses.  As a percentage of revenues from home sales, selling, general and administrative expenses improved to 13.9% in the second quarter of 2010, from 14.3% in 2009.

Gross profits on land sales totaled $2.0 million in the second quarter of 2010, compared to gross profits on land sales of $2.4 million in the second quarter of 2009, net of $5.6 million of valuation adjustments and $1.8 million of write-offs of deposits and pre-acquisition costs.  

Lennar Homebuilding equity in loss from unconsolidated entities was $1.4 million in the second quarter of 2010, compared to Lennar Homebuilding equity in loss from unconsolidated entities of $59.9 million in the second quarter of 2009, which included $50.1 million of valuation adjustments related to assets of unconsolidated entities in which the Company has investments.

Other expense, net, totaled $0.3 million in the second quarter of 2010, which included a pre-tax loss of $10.8 million related to the repurchase of senior notes through a tender offer, offset by other income and a $4.3 million pre-tax gain on the extinguishment of other debt. This is compared to other expense, net, of $8.0 million in the second quarter of 2009, which included $7.0 million of valuation adjustments to the Company’s investments in unconsolidated entities.

Homebuilding interest expense was $37.1 million in the second quarter of 2010 ($19.3 million was included in cost of homes sold, $0.3 million in cost of land sold and $17.5 million in other interest expense), compared to $41.9 million in the second quarter of 2009 ($22.9 million was included in cost of homes sold, $4.4 million in cost of land sold and $14.5 million in other interest expense). Despite an increase in debt, interest expense decreased primarily due to an increase in qualifying assets eligible for interest capitalization and savings resulting from the termination of the Company's senior unsecured revolving credit facility during the first quarter of 2010.

Sales of land, Lennar Homebuilding equity in loss from unconsolidated entities, other expense, net and net earnings (loss) attributable to noncontrolling interests may vary significantly from period to period depending on the timing of land sales and other transactions entered into by the Company and unconsolidated entities in which it has investments.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment was $13.7 million in the second quarter of 2010, compared to operating earnings of $16.5 million in the same period last year. The decrease in profitability was due primarily to decreased volume in the segment’s mortgage and title operations, partially offset by $5.1 million of proceeds received from the previous sale of a cable system.

Rialto Investments

In the second quarter of 2010, operating earnings for the Rialto Investments segment were $14.7 million (which includes $9.6 million of net earnings attributable to noncontrolling interests), compared to an operating loss of $0.5 million in the same period last year. In the second quarter of 2010, revenues in this segment were $34.6 million, which consisted primarily of accretable interest income associated with the portfolio of real estate loans acquired in partnership with the FDIC. In the second quarter of 2010, expenses in this segment were $19.5 million, which consisted primarily of carrying costs related to that portfolio of real estate loans, underwriting expenses and general and administrative expenses.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were reduced by $7.5 million, or 25%, in the second quarter of 2010, compared to the second quarter of 2009 primarily due to the Company’s cost reduction initiatives implemented during the downturn. Corporate general and administrative expenses as a percentage of total revenues decreased to 2.7% in the second quarter of 2010, from 3.3% in the second quarter of 2009.

Noncontrolling Interests

Net earnings (loss) attributable to noncontrolling interests were $6.9 million and ($6.5) million, respectively, in the second quarter of 2010 and 2009.

Debt Issuances/Repurchases

In April, the Company issued $250 million of 6.95% senior notes due 2018 and $276.5 million of 2.00% convertible senior notes due 2020 in separate private offerings under SEC Rule 144A. In May, the Company repurchased $289.4 million aggregate principal amount of its 5.125% senior notes due October 2010, its 5.95% senior notes due 2011 and its 5.95% senior notes due 2013 through a tender offer, resulting in a pre-tax loss of $10.8 million included in other expense, net.  In addition to the tender offer, the Company repurchased an additional $38.1 million aggregate principal amount of its senior notes due 2010 and 2011.

SIX MONTHS ENDED MAY 31, 2010 COMPARED TO SIX MONTHS ENDED MAY 31, 2009

Lennar Homebuilding

Revenues from home sales decreased 8% in the six months ended May 31, 2010 to $1,208.1 million from $1,311.4 million in 2009.  Revenues were lower primarily due to a 7% decrease in the number of home deliveries, excluding unconsolidated entities. New home deliveries, excluding unconsolidated entities, decreased to 4,890 homes in the six months ended May 31, 2010 from 5,274 homes last year.  The average sales price of homes delivered for the six months ended May 31, 2010 and 2009 was $247,000 and $248,000, respectively. Sales incentives offered to homebuyers as a percentage of home sales revenue improved to 11.9% in the six months ended May 31, 2010, from 17.2% in the six months ended May 31, 2009.  

Gross margins on home sales were $241.8 million, or 20.0%, in the six months ended May 31, 2010, compared to gross margins on home sales of $110.3 million, or 8.4%, in the six months ended May 31, 2009, which included $75.3 million of valuation adjustments. Gross margin percentage on home sales improved compared to last year primarily due to a reduction in valuation adjustments and reduced sales incentives offered to homebuyers as a percentage of revenues from home sales.

Selling, general and administrative expenses were reduced by $36.0 million, or 17%, in the six months ended May 31, 2010, compared to the same period last year, primarily due to reductions in legal and occupancy expenses.  As a percentage of revenues from home sales, selling, general and administrative expenses improved to 14.7% in the six months ended May 31, 2010, from 16.3% in 2009.

Gross profits on land sales totaled $3.4 million in the six months ended May 31, 2010, compared to losses on land sales of $8.1 million in the six months ended May 31, 2009, which included $5.8 million of valuation adjustments and $12.1 million of write-offs of deposits and pre-acquisition costs.  

Lennar Homebuilding equity in loss from unconsolidated entities was $10.3 million in the six months ended May 31, 2010, compared to Lennar Homebuilding equity in loss from unconsolidated entities of $62.8 million in the six months ended May 31, 2009, which included $50.1 million of valuation adjustments related to assets of unconsolidated entities in which the Company has investments.

Other income (expense), net, totaled $14.0 million in the six months ended May 31, 2010, which included a pre-tax loss of $10.8 million related to the repurchase of senior notes through a tender offer, offset by other income and a $13.6 million pre-tax gain on the extinguishment of other debt. This is compared to other income (expense), net, of ($43.8) million in the six months ended May 31, 2009, which included $44.2 million of valuation adjustments to the Company’s investments in unconsolidated entities.

Homebuilding interest expense was $70.3 million in the six months ended May 31, 2010 ($33.7 million was included in cost of homes sold, $0.4 million in cost of land sold and $36.2 million in other interest expense), compared to $58.8 million in the six months ended May 31, 2009 ($27.7 million was included in cost of homes sold, $4.6 million in cost of land sold and $26.5 million in other interest expense). Interest expense increased primarily due to the interest related to the $400 million 12.25% senior notes due 2017 issued during the second quarter of 2009.

Sales of land, Lennar Homebuilding equity in loss from unconsolidated entities, other income (expense), net and net earnings (loss) attributable to noncontrolling interests may vary significantly from period to period depending on the timing of land sales and other transactions entered into by the Company and unconsolidated entities in which it has investments.

Lennar Financial Services

Operating earnings for the Lennar Financial Services segment were $12.8 million in the six months ended May 31, 2010, compared to operating earnings of $17.0 million in the same period last year. The decrease in profitability was due primarily to decreased volume in the segment’s mortgage and title operations, partially offset by $5.1 million of proceeds received from the previous sale of a cable system.

Rialto Investments

In the six months ended May 31, 2010, operating earnings for the Rialto Investments segment were $13.7 million (which includes $9.6 million of net earnings attributable to noncontrolling interests), compared to an operating loss of $1.0 million in the same period last year. In the six months ended May 31, 2010, revenues in this segment were $34.9 million, which consisted primarily of accretable interest income associated with the portfolio of real estate loans acquired in partnership with the FDIC. In the six months ended May 31, 2010, expenses in this segment were $20.9 million, which consisted primarily of carrying costs related to that portfolio of real estate loans, underwriting expenses and general and administrative expenses.

Corporate General and Administrative Expenses

Corporate general and administrative expenses were reduced by $12.4 million, or 22%, for the six months ended May 31, 2010, compared to the same period last year primarily due to the Company’s cost reduction initiatives implemented during the downturn.  As a percentage of total revenues, corporate general and administrative expenses decreased to 3.2% in the six months ended May 31, 2010, from 3.9% in the same period last year.

Noncontrolling Interests

Net earnings (loss) attributable to noncontrolling interests were $5.9 million and ($8.3) million, respectively, in the six months ended May 31, 2010 and 2009.

Lennar Corporation, founded in 1954, is one of the nation’s leading builders of quality homes for all generations. The Company builds affordable, move-up and retirement homes primarily under the Lennar brand name. Lennar’s Financial Services segment provides primarily mortgage financing, title insurance and closing services for both buyers of the Company’s homes and others.  Lennar’s Rialto Investments segment is focused on distressed real estate asset investments, asset management and workout strategies. Previous press releases and further information about the Company may be obtained at the “Investor Relations” section of the Company’s website, www.lennar.com.

Some of the statements in this press release are “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects.  You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters.  Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results.  Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties.  Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.  These factors include those described under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for our fiscal year ended November 30, 2009.  We do not undertake any obligation to update forward-looking statements, except as required by Federal securities laws.

A conference call to discuss the Company’s second quarter earnings will be held at 11:00 a.m. Eastern time on Thursday, June 24, 2010.  The call will be broadcast live on the Internet and can be accessed through the Company’s website at www.lennar.com.  If you are unable to participate in the conference call, the call will be archived at www.lennar.com for 90 days.  A replay of the conference call will also be available later that day by calling 203-369-1418 and entering 5723593 as the confirmation number.

SOURCE Lennar Corporation