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Lennar Corporation profit jumps 45 percent on strong housing demand

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Staff Writer | June 26, 2018
Lennar Corporation reported results for its second quarter ended May 31, 2018.
Lennar Corporation
Lennar   Second quarter net earnings were $310.3 million
Second quarter net earnings attributable to Lennar in 2018 were $310.3 million, or $0.94 per diluted share, compared to second quarter net earnings attributable to Lennar in 2017 of $213.6 million, or $0.89 per diluted share.

Earnings in the second quarter of 2018 were reduced by $236.8 million ($0.58 per diluted share) of pretax backlog/construction in progress write-up related to purchase accounting and $23.9 million ($0.06 per diluted share) of pretax acquisition and integration costs related to CalAtlantic.

Revenues from home sales increased 74% in the second quarter of 2018 to $5.0 billion from $2.9 billion in the second quarter of 2017.

Revenues were higher primarily due to a 57% increase in the number of home deliveries, excluding unconsolidated entities, and an 11% increase in the average sales price of homes delivered.

New home deliveries, excluding unconsolidated entities, increased to 12,078 homes in the second quarter of 2018 from 7,687 homes in the second quarter of 2017.

There was an increase in home deliveries in all of the Company's Homebuilding segments and Homebuilding Other primarily as a result of the significant increase in volume resulting from the CalAtlantic acquisition.

The average sales price of homes delivered was $413,000 in the second quarter of 2018, compared to $374,000 in the second quarter of 2017.

The increase in average sales price is primarily resulting from the CalAtlantic acquisition.

Sales incentives offered to homebuyers were $23,000 per home delivered in the second quarter of 2018, or 5.3% as a percentage of home sales revenue, compared to $22,700 per home delivered in the second quarter of 2017, or 5.7% as a percentage of home sales revenue, and $22,300 per home delivered in the first quarter of 2018, or 5.4% as a percentage of home sales revenue.

Gross margins on home sales were $840.0 million, or 16.8%, in the second quarter of 2018.

Excluding the backlog/construction in progress write-up of $236.8 million related to purchase accounting adjustments on CalAtlantic homes that were delivered in the second quarter of 2018, gross margins on home sales were $1.1 billion or 21.6%.

This compared to gross margins on home sales of $616.9 million, or 21.5%, in the second quarter of 2017.

Gross margin percentage on home sales increased compared to the second quarter of 2017 primarily due to an increase in the average sales price of homes delivered, partially offset by higher construction costs.

Selling, general and administrative expenses were $432.5 million in the second quarter of 2018, compared to $268.4 million in the second quarter of 2017.

As a percentage of revenues from home sales, selling, general and administrative expenses improved to 8.7% in the second quarter of 2018, from 9.3% in the second quarter of 2017, due to improved operating leverage as a result of an increase in home deliveries and continued benefit from technology initiatives.

WCI Communities, Inc.

("WCI") transaction-related expenses had a negative 20 basis point impact to selling, general and administrative expenses as a percentage of revenues from home sales in the second quarter of 2017.

Gross profits on land sales were $20.3 million in the three months ended May 31, 2018, which included profits of $15.0 million on two strategic land sales.

This compared to gross profits on land sales of $1.7 million in the three months ended May 31, 2017.

Lennar Homebuilding equity in loss from unconsolidated entities was $12.2 million in the second quarter of 2018, compared to $21.5 million in the second quarter of 2017.

In the second quarter of 2018, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of valuation adjustments related to assets of a Lennar Homebuilding unconsolidated entity and the Company's share of net operating losses from its unconsolidated entities.

In the second quarter of 2017, Lennar Homebuilding equity in loss from unconsolidated entities was primarily attributable to the Company's share of net operating losses from its unconsolidated entities, primarily driven by general and administrative expenses, as there were no significant land sale transactions.

Lennar Homebuilding other income, net, was $9.8 million in the second quarter of 2018, compared to $3.8 million in the second quarter of 2017.

Lennar Homebuilding interest expense was $75.8 million in the second quarter of 2018 ($71.9 million was included in costs of homes sold, $0.9 million in costs of land sold and $3.0 million in other income, net), compared to $71.9 million in the second quarter of 2017 ($69.9 million was included in costs of homes sold, $0.7 million in costs of land sold and $1.3 million in other income, net).

Interest expense included in costs of homes sold increased primarily due to an increase in home deliveries.

Operating earnings for the Lennar Financial Services segment were $52.4 million in the second quarter of 2018, compared to $43.7 million in the second quarter of 2017.

Operating earnings were impacted by an increase in the segment's title and mortgage operations due to the acquisition of CalAtlantic's Financial Services operations, partially offset by a decrease in refinance transactions and lower mortgage profit per loan originated.


 

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