Financial Highlights
Second Quarter
- Revenues of $4.6 billion - up 56%
- Earnings from continuing operations of $324.7 million - up 39%
- EPS from continuing operations of $2.00 - up 41%
- Homebuilding operating earnings of $537.4 million - up 25%
- Financial Services operating earnings from continuing operations of
$34.6 million - up $15.6 million
- Repurchased 5.0 million shares under stock repurchase program
- Homebuilding debt to total capital of 33.5%
- Return on equity of 29.4%
- New orders of 11,757 homes - down 3%
2006 Goal
- Fiscal 2006 EPS goal revised to a range of $8.00 to $8.25
MIAMI, June 26 /PRNewswire-FirstCall/ -- Lennar Corporation (NYSE: LEN
and LEN.B), one of the nation's largest homebuilders, today reported
earnings for its second quarter ended May 31, 2006. Second quarter earnings
from continuing operations in 2006 were $324.7 million, or $2.00 per share
diluted, compared to earnings from continuing operations of $233.2 million,
or $1.42 per share diluted, in 2005.
Stuart Miller, President and Chief Executive Officer of Lennar
Corporation said, "After a long period of steady growth, the homebuilding
industry has slowed, as evidenced by lower new orders and higher
cancellation rates in many geographic markets across the country. These
conditions are primarily the result of speculators exiting the market and
changing homebuyer sentiment. Although current market conditions have
softened, we believe favorable demographic trends and high employment
levels bode well for long-term homebuilding fundamentals."
Mr. Miller continued, "Even while market conditions have been changing,
we have maintained a focused and orderly approach to managing our
operations with an intensified emphasis on maintaining strong cash flow
generation and achieving evenflow production. This focus resulted in a 56%
increase in revenues and a 41% increase in earnings per share from
continuing operations, compared to our second quarter last year. However,
we are experiencing slower new orders and higher cancellation rates.
Consequently, the second half of the year will be more challenging. As a
result, we are focusing our efforts on partially offsetting the effects of
increased sales incentives by reducing land costs, production costs and
selling, general and administrative expenses."
Mr. Miller concluded, "We have consistently focused on a balance sheet
first approach to managing our operations. This strategy works particularly
well in slower market cycles. During the second quarter, we repurchased 5.0
million shares of stock while at the same time maintained a strong and
liquid balance sheet as evidenced by our homebuilding debt to total capital
of 33.5% and only $185 million borrowed under our revolving credit
facility. Although we are revising our EPS goal downward to a range of
$8.00 to $8.25 at this time, we recognize that market conditions are
continually changing. Our operating strategy and strong balance sheet
should enable us to respond to these changing conditions and to take
advantage of opportunities as they present themselves."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2006 COMPARED TO
THREE MONTHS ENDED MAY 31, 2005
Homebuilding
Revenues from home sales increased 53% in the second quarter of 2006 to
$4.0 billion from $2.6 billion in 2005. Revenues were higher primarily due
to a 40% increase in the number of home deliveries and a 10% increase in
the average sales price of homes delivered in 2006. New home deliveries,
excluding unconsolidated entities, increased to 12,506 homes in the second
quarter of 2006 from 8,951 homes last year. In the second quarter of 2006,
new home deliveries were higher in each of the Company's regions, compared
to 2005. The average sales price of homes delivered increased to $322,000
in the second quarter of 2006 from $293,000 in 2005. However, new orders
during the second quarter of 2006 decreased to 11,757 homes, from 12,095
homes last year; and our backlog as of May 31, 2006 was 17,990 homes with a
backlog dollar value of $6.5 billion, compared to 20,536 homes, with a
backlog dollar value of $7.3 billion at May 31, 2005 and 19,458 homes with
a backlog dollar value of $7.1 billion at February 28, 2006.
Gross margins on home sales were $946.5 million, or 23.5%, in the
second quarter of 2006, compared to $654.1 million, or 24.9%, in the same
quarter of 2005. Gross margin percentage on home sales decreased 140 basis
points, compared to last year, due to decreases in the Central and West
regions, primarily due to higher sales incentives offered to homebuyers,
partially offset by a slight increase in the East Region. Gross margin
percentage in the second quarter of 2006 was 140 basis points lower than
the 24.9% gross margin percentage in the first quarter of 2006.
Selling, general and administrative expenses as a percentage of
revenues from home sales improved to 11.8% in the second quarter of 2006,
from 12.1% in 2005. The 30 basis point improvement was primarily due to
lower personnel- related expenses as a percentage of revenues from home
sales, partially offset by increases in broker commissions and advertising
expenses. Management fees of $8.9 million received during the second
quarter of 2005 from unconsolidated entities in which the Company has
investments, which were previously recorded as a reduction of selling,
general and administrative expenses, have been reclassified to management
fees and other income, net in order to conform to the 2006 presentation.
Gross profit on land sales totaled $41.1 million in the second quarter
of 2006 (net of $21.8 million in write-offs of option deposits and
pre-acquisition costs related to land under option that the Company does
not intend to purchase), compared to $72.7 million in 2005. Equity in
earnings from unconsolidated entities was $14.8 million in the second
quarter of 2006, compared to $21.7 million last year. Management fees and
other income, net, totaled $16.4 million in the second quarter of 2006,
compared to $19.7 million in the second quarter of 2005. Minority interest
expense, net was $6.5 million and $19.4 million, respectively, in the
second quarter of 2006 and 2005. Sales of land, equity in earnings from
unconsolidated entities, management fees and other income, net and minority
interest expense, net 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.
Financial Services
Operating earnings from continuing operations for the Financial
Services Division were $34.6 million in the second quarter of 2006,
compared to $19.0 million last year. The increase was primarily due to
increased profitability from the Division's mortgage operations as a result
of increased volume and profit per loan.
Corporate General and Administrative Expenses
Corporate general and administrative expenses as a percentage of total
revenues were 1.2% and 1.4%, respectively, for the second quarter of 2006
and 2005.
SIX MONTHS ENDED MAY 31, 2006 COMPARED TO
SIX MONTHS ENDED MAY 31, 2005
Homebuilding
Revenues from home sales increased 44% in the six months ended May 31,
2006 to $6.9 billion from $4.8 billion in 2005. Revenues were higher
primarily due to a 30% increase in the number of home deliveries and an 11%
increase in the average sales price of homes delivered in 2006. New home
deliveries, excluding unconsolidated entities, increased to 21,410 homes in
the six months ended May 31, 2006 from 16,528 homes last year. In the six
months ended May 31, 2006, new home deliveries were higher in each of the
Company's regions, compared to 2005. The average sales price of homes
delivered increased to $324,000 in the six months ended May 31, 2006 from
$292,000 in 2005. However, new orders during the six months ended May 31,
2006 were 21,550 homes, which was essentially the same as the 21,555 new
orders during the six months ended May 31, 2005 and the 21,850 new orders
received during the second half of 2005.
Gross margins on home sales were $1.7 billion, or 24.1%, in the six
months ended May 31, 2006, compared to $1.2 billion, or 24.8%, in 2005.
Gross margin percentage on home sales decreased 70 basis points, compared
to last year, due to decreases in the Central and West regions, primarily
due to higher sales incentives offered to homebuyers, partially offset by a
slight increase in the East Region. Gross margin percentage in the first
six months of 2006 was 260 basis points lower than the 26.7% gross margin
percentage in the second half of 2005.
Selling, general and administrative expenses as a percentage of
revenues from home sales were 12.3% and 12.2%, respectively, for the six
months ended May 31, 2006 and 2005. Management fees of $15.3 million
received during the six months ended May 31, 2005 from unconsolidated
entities in which the Company has investments, which were previously
recorded as a reduction of selling, general and administrative expenses,
have been reclassified to management fees and other income, net in order to
conform to the 2006 presentation.
Gross profit on land sales totaled $90.2 million in the six months
ended May 31, 2006 (net of $25.3 million in write-offs of option deposits
and pre-acquisition costs related to land under option that the Company
does not intend to purchase), compared to $96.2 million in 2005. Equity in
earnings from unconsolidated entities was $53.0 million in the six months
ended May 31, 2006, compared to $37.9 million last year. Management fees
and other income, net, totaled $35.8 million in the six months ended May
31, 2006, compared to $41.3 million in 2005. Minority interest expense, net
was $11.0 million and $20.7 million, respectively, in the six months ended
May 31, 2006 and 2005. Sales of land, equity in earnings from
unconsolidated entities, management fees and other income, net and minority
interest expense, net 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.
Financial Services
Operating earnings from continuing operations for the Financial
Services Division were $45.2 million in the six months ended May 31, 2006,
compared to $35.2 million last year. The increase was primarily due to
increased profitability from the Division's mortgage operations as a result
of increased volume and profit per loan.
Corporate General and Administrative Expenses
Corporate general and administrative expenses as a percentage of total
revenues were 1.4% and 1.5%, respectively, for the six months ended May 31,
2006 and 2005.
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 and
U.S. Home brand names. Lennar's Financial Services Division provides
primarily mortgage financing, title insurance and closing services for both
buyers of the Company's homes and others. Previous press releases and
further information about the Company may be obtained at the "Investor
Relations" section of the Company's website, http://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,
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 Relating to Our
Business" in Item 1A of our Annual Report on Form 10-K for our fiscal year
ended November 30, 2005. We do not undertake any obligation to update
forward-looking statements.
A conference call to discuss the Company's second quarter earnings will
be held at 11:00 a.m. Eastern time on Monday, June 26, 2006. The call will
be broadcast live on the Internet and can be accessed through the Company's
website at http://www.lennar.com. If you are unable to participate in the
conference call, the call will be archived at http://www.lennar.com for 90
days. A replay of the conference call will also be available later that day
by calling 320-365-3844 and entering 832734 as the confirmation number.
LENNAR CORPORATION AND SUBSIDIARIES
Selected Revenues and Earnings Information
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
May 31, May 31,
2006 2005 2006 2005
Revenues:
Homebuilding $4,415,302 2,801,315 7,524,020 5,091,253
Financial services 162,201 131,659 294,142 247,452
Total revenues $4,577,503 2,932,974 7,818,162 5,338,705
Homebuilding operating
earnings $ 537,413 431,461 988,285 761,980
Financial services operating
earnings 34,591 18,963 45,216 35,249
Corporate general and
administrative expenses 56,532 40,827 108,423 77,987
Loss on redemption of 9.95%
senior notes -- 34,908 -- 34,908
Earnings from continuing
operations before
provision for income taxes 515,472 374,689 925,078 684,334
Provision for income taxes 190,725 141,445 342,279 258,336
Earnings from continuing
operations 324,747 233,244 582,799 425,998
Discontinued operations:
Earnings from discontinued
operations before
provision for income
taxes -- 16,535 -- 17,261
Provision for income taxes -- 6,242 -- 6,516
Earnings from discontinued
operations -- 10,293 -- 10,745
Net earnings $ 324,747 243,537 582,799 436,743
Average shares outstanding:
Basic 159,571 154,292 158,698 154,718
Diluted 162,916 165,711 163,735 166,284
Earnings per share:
Basic:
Earnings from continuing
operations $ 2.04 1.51 3.67 2.75
Earnings from discontinued
operations 0.00 0.07 0.00 0.07
Net earnings $ 2.04 1.58 3.67 2.82
Diluted:
Earnings from continuing
operations $ 2.00 1.42 3.57 2.59
Earnings from discontinued
operations 0.00 0.06 0.00 0.06
Net earnings $ 2.00 1.48 3.57 2.65
Supplemental information:
Interest incurred (1) $ 66,521 40,560 120,005 77,483
EBIT (2):
Earnings from continuing
operations before
provision for income
taxes $ 515,472 374,689 925,078 684,334
Earnings from discontinued
operations before
provision for income
taxes -- 16,535 -- 17,261
Interest 72,222 46,552 117,092 77,604
EBIT $ 587,694 437,776 1,042,170 779,199
(1) Homebuilding interest incurred is capitalized to inventories and
relieved as cost of sales when homes are delivered or land is sold.
(2) EBIT is a non-GAAP financial measure derived by adding back previously
capitalized interest amortized to cost of sales that was reflected in
earnings before provision for income taxes. The Company's management
uses EBIT because it believes this financial measure helps to compare
the Company's operations with those of its competitors, by eliminating
factors that differ from company to company for reasons that often are
not related to the efficiency and effectiveness of a particular
company's operations. The Company believes EBIT provides useful
information to investors and analysts, because it will help them
compare the efficiency and effectiveness of the Company's operations
with those of its competitors.
LENNAR CORPORATION AND SUBSIDIARIES
Homebuilding Segment Information
(In thousands)
Three Months Ended Six Months Ended
May 31, May 31,
2006 2005 (1) 2006 2005 (1)
Revenues:
Sales of homes $4,023,273 2,622,340 6,943,968 4,836,919
Sales of land 392,029 178,975 580,052 254,334
Total revenues 4,415,302 2,801,315 7,524,020 5,091,253
Costs and expenses:
Cost of homes sold 3,076,765 1,968,258 5,269,537 3,638,394
Cost of land sold 350,959 106,255 489,878 158,129
Selling, general and
administrative 474,791 317,309 854,156 591,274
Total costs and expenses 3,902,515 2,391,822 6,613,571 4,387,797
Equity in earnings from
unconsolidated entities 14,792 21,747 52,982 37,886
Management fees and other
income, net 16,375 19,669 35,808 41,323
Minority interest expense,
net 6,541 19,448 10,954 20,685
Operating earnings $ 537,413 431,461 988,285 761,980
(1) Certain prior year amounts have been reclassified to conform to the
2006 presentation.
LENNAR CORPORATION AND SUBSIDIARIES
Summary of Deliveries, New Orders and Backlog By Region
(Dollars in thousands)
At or for the
Three Months Ended Six Months Ended
May 31, May 31,
2006 2005 2006 2005
Deliveries:
East 4,219 2,697 7,117 4,906
Central 3,856 2,953 6,575 5,250
West 5,150 3,560 8,832 6,863
Total 13,225 9,210 22,524 17,019
Of the total deliveries listed above, 719 and 1,114, respectively,
represent deliveries from unconsolidated entities for the three and six
months ended May 31, 2006, compared to 259 and 491 deliveries in the same
periods last year.
New Orders:
East 3,144 3,427 6,561 6,467
Central 3,876 3,847 7,029 6,691
West 4,737 4,821 7,960 8,397
Total 11,757 12,095 21,550 21,555
Of the total new orders listed above, 619 and 901, respectively, represent
new orders from unconsolidated entities for the three and six months ended
May 31, 2006, compared to 430 and 752 new orders in the same periods last
year.
Backlog - Homes:
East 7,699 8,888
Central 3,690 4,008
West 6,601 7,640
Total 17,990 20,536
Of the total homes in backlog listed above, 1,504 represents homes in
backlog from unconsolidated entities at May 31, 2006, compared to 1,846
homes in backlog at May 31, 2005.
Backlog - Dollar Value:
East $2,786,425 2,989,464
Central 849,157 957,703
West 2,891,932 3,396,595
Total $6,527,514 7,343,762
Of the total dollar value of homes in backlog listed above, $613,370
represents the backlog dollar value from unconsolidated entities at May
31, 2006, compared to $768,731 of backlog dollar value at May 31, 2005.
Lennar's market regions consist of homebuilding divisions located in the
following states:
East: Florida, Maryland, Virginia, New Jersey, New York, North
Carolina and South Carolina
Central: Texas, Illinois and Minnesota
West: California, Colorado, Arizona and Nevada
LENNAR CORPORATION AND SUBSIDIARIES
Supplemental Data
(Dollars in thousands)
May 31,
2006 2005
Homebuilding debt $2,908,296 2,337,436
Stockholders' equity 5,766,219 4,267,486
Total capital $8,674,515 6,604,922
Homebuilding debt to total capital 33.5% 35.4%
SOURCE Lennar Corporation
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