What housing slowdown? Lennar’s stock rises after homebuilder reports uptick in potential buyers

Sales and new home orders missed expectations in Q4, but executive chairman Stuart Miller said increased buyer traffic bodes well for 2019

Stuart Miller Executive Chairman of Lennar and a Lennar home (Credit: Builder Magazine and iStock)
Stuart Miller Executive Chairman of Lennar and a Lennar home (Credit: Builder Magazine and iStock)

Lennar, the country’s biggest homebuilder, missed analysts expectations for sales and new home orders in the fourth quarter, but its stock still jumped.

The reason: Lennar’s executive chairman Stuart Miller said that there are more potential buyers for their homes. It also didn’t hurt that the company reported a massive jump in end of year revenue, and while sales and home orders missed projections, both were still up from the same time last year.

Miller, who spoke at Wednesday’s earnings call with analysts, said the recent uptick in potential buyers in December and into the new year was propelled by slightly slowing mortgage rates increases during what has been a cooling housing market. Lennar’s fourth quarter runs from September through November.

Lennar’s stock price climbed 7 percent after the late morning call, rising to $45.90, from $43.14.

Reaction to the earnings call signals just how big of an impact rising rates have on homebuilders and the housing market. Rising mortgage rates have pushed many potential homeowners out of the market as it increases the cost of mortgage payments, according to experts.

Overall, revenues increased to $6.5 billion, up 71 percent in the fourth quarter. Net earnings were $796.1 million, or $2.42 per diluted share.

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Home sales increased 64 percent to 14,154 in the fourth quarter compared to the previous year, Lennar reported. Analysts had expected an increase of 14,485 homes.

During the same time September through November period, new home orders increased 44 percent to 10,611 homes in the quarter, lower than analysts expectations of 11,174 homes.

Signaling that market conditions for the broader real estate industry remain challenging, Lennar company would not release a full forecast for 2019. The company said it was due to “continued softness and uncertainty” in a seasonally weak time of the year.

Officials did say in the earnings call that Lennar expects to deliver 50,000 new homes this year.

The company reported weaker margins, however, than the previous year, likely driven in part by higher construction costs and supply costs. Gross margin on home sales was 21.4 percent in the fourth quarter of 2018, compared to 22.4 percent in 2017.

Lennar became the country’s largest homebuilder after it acquired CalAtlantic in a deal worth $9 billion last year. Analysts say that Lennar will benefit in a downturn from the deal because the company will have more leverage to negotiate better prices for land and supplies.