Lennar reports strong Q3 earnings amid industry pressures

The Miami-based homebuilder projects new orders and deliveries to slow in the fourth quarter due to Hurricane Florence

Oct.October 03, 2018 03:42 PM

Stuart Miller (Credit: iStock)

Lennar reported strong third quarter earnings on Wednesday, yet indicated that new home orders and deliveries would be below expectations in the upcoming quarter as a result of Hurricane Florence.

The Miami-based company reported earnings of $453.2 million in the third quarter or $1.37 per share, beating analysts expectations of $1.19. Net income rose about 82 percent from the same period last year largely due to its acquisition of CalAtlantic earlier this year.

The homebuilder expects fourth quarter home deliveries, however, to fall to 14,500 from its previous forecast of 15,000 due to the impacts of Hurricane Florence, according to a conference call with analysts.

But overall, demand remained strong in the quarter. New home orders in the third quarter increased 62 percent from the same period of last year to 12,319 homes for a total of $5.1 billion.

Lennar CEO Rick Beckwitt said the results suggest buyers are still interested in Lennar’s reasonably priced new homes. In contrast, nationwide home sales are reportedly slowing down in some major U.S. markets.

“The basic underlying fundamentals of the housing industry of low unemployment, higher wages and low inventory levels remain favorable and are likely to support longer-term strength in the housing market,” Beckwitt said in a statement.

Homebuilders across the country are battling higher supply costs and labor shortages. Rising interest rates have also made mortgage payments more expensive. These issues are putting increasing pressure on homebuilders’ margins.

Possibly highlighting these pressures, Lennar’s gross margin on home sales fell to 20.3 percent in the third quarter of 2018 compared to 22.8 percent in the third quarter of 2017.

In the second quarter, Lennar also beat analysts’ expectations, earning $310.3 million, or $0.94 per share — exceeding Wall Street’s expectations of $0.45 per share. The results largely reflected new homes sales following Lennar’s $9.3 billion acquisition of CalAtlantic in February. Analysts said the move helped Lennar gain scale to boost its negotiating power for labor, supply and land costs.

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