Financial Highlights
- Revenues of $4.2 billion - up 20%
- EPS of $1.30 - down 37%
- Gross margin on home sales of 18.7% - down 760 basis points
- Gross profit on land sales of ($0.3) million - down $46.7 million
- Financial Services operating earnings of $61.7 million - up $26.8
million
- Homebuilding debt to total capital of 31.9% - 520 basis point
improvement
- Return on equity of 25.2%
- Deliveries of 13,038 homes - up 19%
- New orders of 11,056 homes - down 5%
MIAMI, Sept. 26 /PRNewswire-FirstCall/ -- Lennar Corporation (NYSE: LEN
and LEN.B), one of the nation's largest homebuilders, today reported
earnings for its third quarter ended August 31, 2006. Third quarter
earnings in 2006 were $206.7 million, or $1.30 per diluted share, compared
to earnings of $337.3 million, or $2.06 per diluted share, in 2005. Third
quarter results were within the Company's previously announced revised goal
of $1.25 to $1.35 per diluted share.
Stuart Miller, President and Chief Executive Officer of Lennar
Corporation, said, "The U.S. housing market has continued to deteriorate,
trailing down further and faster than anticipated. Under these difficult
conditions, we remain focused on our strategy of carefully managing
inventory, reducing construction costs and overhead, methodically tapering
back production and emphasizing cash generation. We have limited our land
purchases and reduced standing inventory through strategic asset
management. Additionally, we have emphasized salesmanship and simplicity in
the field which help control costs in the management of our business. We
believe our strategy will continue to improve our cash flow and balance
sheet from already excellent positions."
Mr. Miller continued, "Our strong balance sheet and cash flow provide a
solid foundation for current operations during declining market conditions
and will enable us to capitalize on strategic growth opportunities as the
market solidifies."
Mr. Miller concluded, "We believe that our balance sheet-first approach
to managing our business serves as an excellent strategy through both up
and down cycles in the homebuilding industry. Although the economy remains
strong and unemployment and interest rates remain relatively low, it is not
clear that the homebuilding downturn has yet found a floor. Due to this
uncertainty, we are updating our fourth quarter goal downward to a broad
range of $1.00 to $1.30 per share."
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 2006 COMPARED TO
THREE MONTHS ENDED AUGUST 31, 2005
Homebuilding
Revenues from home sales increased 21% in the third quarter of 2006 to
$3.9 billion from $3.2 billion in 2005. Revenues were higher primarily due
to a 17% increase in the number of home deliveries and a 3% increase in the
average sales price of homes delivered in 2006. New home deliveries,
excluding unconsolidated entities, increased to 12,337 homes in the third
quarter of 2006 from 10,503 homes last year. In the three months ended
August 31, 2006, new home deliveries were higher in each of the Company's
homebuilding segments and homebuilding other, compared to 2005. The average
sales price of homes delivered increased to $316,000 in the third quarter
of 2006 from $306,000 in 2005. New orders during the third quarter of 2006
decreased to 11,056, from 11,614 homes last year; and the Company's backlog
as of August 31, 2006 was 16,008 homes with a backlog dollar value of $5.6
billion, compared to 21,818 homes with a backlog dollar value of $8.1
billion at August 31, 2005, and 17,990 homes with a backlog dollar value of
$6.5 billion at May 31, 2006.
Gross margins on home sales were $729.2 million, or 18.7%, in the third
quarter of 2006, compared to $846.4 million, or 26.3%, in the same quarter
of 2005. Gross margin percentage on home sales decreased 760 basis points,
compared to last year, due to decreases in all of the Company's
homebuilding segments and homebuilding other, primarily due to higher sales
incentives offered to homebuyers and $32.0 million of inventory valuation
adjustments. Gross margin percentage in the third quarter of 2006 was also
480 basis points lower than the 23.5% gross margin percentage in the second
quarter of 2006.
Selling, general and administrative expenses as a percentage of
revenues from home sales improved to 10.9% in the third quarter of 2006,
from 11.3% in 2005. The 40 basis point improvement was primarily due to
lower incentive compensation expenses, partially offset by increases in
broker commissions and advertising expenses. Management fees of $10.3
million received during the third 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 (loss) on land sales totaled ($0.3) million in the third
quarter of 2006 (net of $15.8 million of write-offs of deposits and pre-
acquisition costs related to land under option that the Company does not
intend to purchase and $11.8 million of inventory valuation adjustments),
compared to gross profit of $46.4 million in 2005. Equity in earnings
(loss) from unconsolidated entities was ($5.9) million in the third quarter
of 2006 (which included $16.5 million in valuation adjustments to the
Company's investments in unconsolidated entities), compared to $16.8
million last year. Management fees and other income, net, totaled $21.8
million in the third quarter of 2006, compared to $20.4 million in the
third quarter of 2005. Minority interest expense, net was $1.1 million and
$13.2 million, respectively, in the third quarter of 2006 and 2005. Sales
of land, equity in earnings (loss) 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 for the Financial Services segment were $61.7
million in the third quarter of 2006, compared to $34.9 million last year.
The increase was primarily due to a $17.7 million pretax gain generated
from monetizing the segment's personal lines insurance policies, as well as
increased profitability from the segment'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% in the three months ended August 31, 2006, compared to
1.3% in the same period last year.
NINE MONTHS ENDED AUGUST 31, 2006 COMPARED TO
NINE MONTHS ENDED AUGUST 31, 2005
Homebuilding
Revenues from home sales increased 35% in the nine months ended August
31, 2006 to $10.8 billion from $8.1 billion in 2005. Revenues were higher
primarily due to a 25% increase in the number of home deliveries and an 8%
increase in the average sales price of homes delivered in 2006. New home
deliveries, excluding unconsolidated entities, increased to 33,747 homes in
the nine months ended August 31, 2006 from 27,031 homes last year. In the
nine months ended August 31, 2006, new home deliveries were higher in each
of the Company's homebuilding segments and homebuilding other, compared to
2005. The average sales price of homes delivered increased to $321,000 in
the nine months ended August 31, 2006 from $298,000 in 2005. New orders
during the nine months ended August 31, 2006 were 32,606 homes, down from
33,169 new orders during the nine months ended August 31, 2005.
Gross margins on home sales were $2.4 billion, or 22.2%, in the nine
months ended August 31, 2006, compared to $2.0 billion, or 25.4%, in 2005.
Gross margin percentage on home sales decreased 320 basis points, compared
to last year, due to decreases in all of the Company's homebuilding
segments and homebuilding other, primarily due to higher sales incentives
offered to homebuyers and $40.7 million of inventory valuation adjustments.
Selling, general and administrative expenses as a percentage of
revenues from home sales were 11.8% and 11.9%, respectively, for the nine
months ended August 31, 2006 and 2005. Management fees of $25.6 million
received during the nine months ended August 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 $89.9 million in the nine months
ended August 31, 2006 (net of $41.1 million of write-offs of deposits and
pre- acquisition costs related to land under option that the Company does
not intend to purchase and $35.8 million of inventory valuation
adjustments), compared to $142.6 million in 2005. Equity in earnings from
unconsolidated entities was $47.1 million in the nine months ended August
31, 2006 (which included $16.7 million in valuation adjustments to the
Company's investments in unconsolidated entities), compared to $54.7
million last year. Management fees and other income, net, totaled $57.7
million in the nine months ended August 31, 2006, compared to $61.8 million
in 2005. Minority interest expense, net was $12.1 million and $33.9
million, respectively, in the nine months ended August 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 segment were $106.9 million in the nine months ended August 31,
2006, compared to $70.2 million last year. The increase was primarily due
to a $17.7 million pretax gain generated from monetizing the segment's
personal lines insurance policies, as well as increased profitability from
the segment'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 1.3% in the nine months ended August 31, 2006, compared to
1.4% in the same period last year.
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 segment 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/A 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 third quarter earnings will
be held at 11:00 a.m. Eastern time on Tuesday, September 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 612-288-0318 and entering 841792 as the confirmation number.
LENNAR CORPORATION AND SUBSIDIARIES
Selected Revenues and Earnings Information
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
2006 2005 2006 2005
Revenues:
Homebuilding $3,996,791 3,346,008 11,520,811 8,437,261
Financial services 185,644 152,324 479,786 399,776
Total revenues $4,182,435 3,498,332 12,000,597 8,837,037
Homebuilding operating
earnings $ 317,222 552,577 1,305,507 1,314,557
Financial services operating
earnings 61,694 34,939 106,910 70,188
Corporate general and
administrative expenses 50,861 45,744 159,284 123,731
Loss on redemption of 9.95%
senior notes - - - 34,908
Earnings from continuing
operations before
provision for income taxes 328,055 541,772 1,253,133 1,226,106
Provision for income taxes 121,380 204,519 463,659 462,855
Earnings from continuing
operations 206,675 337,253 789,474 763,251
Discontinued operations:
Earnings from discontinued
operations before
provision for income
taxes - - - 17,261
Provision for income taxes - - - 6,516
Earnings from discontinued
operations - - - 10,745
Net earnings $ 206,675 337,253 789,474 773,996
Average shares outstanding:
Basic 157,634 155,048 158,344 154,828
Diluted 159,225 164,917 162,231 165,828
Earnings per share:
Basic:
Earnings from continuing
operations $ 1.31 2.18 4.99 4.93
Earnings from discontinued
operations - - - 0.07
Net earnings $ 1.31 2.18 4.99 5.00
Diluted:
Earnings from continuing
operations $ 1.30 2.06 4.88 4.64
Earnings from discontinued
operations - - - 0.07
Net earnings $ 1.30 2.06 4.88 4.71
Supplemental information:
Interest incurred (1) $ 63,268 45,388 183,273 122,871
EBIT (2):
Earnings from continuing
operations before
provision for
income taxes $ 328,055 541,772 1,253,133 1,226,106
Earnings from discontinued
operations before
provision for
income taxes - - - 17,261
Interest 60,868 44,190 177,960 121,794
EBIT $ 388,923 585,962 1,431,093 1,365,161
(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 Information
(In thousands)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
2006 2005 (1) 2006 2005 (1)
Revenues:
Sales of homes $3,902,540 3,216,186 10,846,508 8,053,105
Sales of land 94,251 129,822 674,303 384,156
Total revenues 3,996,791 3,346,008 11,520,811 8,437,261
Costs and expenses:
Cost of homes sold 3,173,342 2,369,738 8,442,879 6,008,132
Cost of land sold 94,547 83,413 584,425 241,542
Selling, general and
administrative 426,520 364,338 1,280,676 955,612
Total costs and expenses 3,694,409 2,817,489 10,307,980 7,205,286
Equity in earnings (loss)
from unconsolidated
entities (5,903) 16,793 47,079 54,679
Management fees and other
income, net 21,844 20,434 57,652 61,757
Minority interest expense,
net 1,101 13,169 12,055 33,854
Operating earnings $ 317,222 552,577 1,305,507 1,314,557
(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)
(unaudited)
At or for the
Three Months Ended Nine Months Ended
August 31, August 31,
2006 2005 2006 2005
Deliveries:
East 3,679 2,886 10,083 7,276
Central 4,485 4,065 12,439 10,757
West 3,565 3,008 9,923 7,436
Other 1,309 978 3,117 2,487
Total 13,038 10,937 35,562 27,956
Of the total deliveries listed above, 701 and 1,815, respectively,
represent deliveries from unconsolidated entities for the three and nine
months ended August 31, 2006, compared to 434 and 925 deliveries in the
same periods last year.
New Orders:
East 2,747 2,770 8,615 8,640
Central 4,353 4,159 12,419 11,783
West 2,937 3,589 8,761 9,667
Other 1,019 1,096 2,811 3,079
Total 11,056 11,614 32,606 33,169
Of the total new orders listed above, 532 and 1,433, respectively,
represent new orders from unconsolidated entities for the three and nine
months ended August 31, 2006, compared to 219 and 971 new orders in the
same periods last year.
Backlog - Homes:
East 6,240 8,696
Central 4,527 5,095
West 4,043 6,135
Other 1,198 1,892
Total 16,008 21,818
Of the total homes in backlog listed above, 1,335 represents homes in
backlog from unconsolidated entities at August 31, 2006, compared to
1,401 homes in backlog at August 31, 2005.
Backlog - Dollar Value:
East $2,190,137 3,112,877
Central 1,089,275 1,301,528
West 1,866,180 3,095,609
Other 458,463 633,138
Total $5,604,055 8,143,152
Of the total dollar value of homes in backlog listed above, $577,630
represents the backlog dollar value from unconsolidated entities at
August 31, 2006, compared to $593,238 of backlog dollar value at
August 31, 2005.
Lennar's reportable homebuilding segments and homebuilding other consist
of homebuilding divisions located in the following states:
East: Florida, Maryland, New Jersey and Virginia
Central: Arizona, Colorado and Texas
West: California and Nevada
Other: Illinois, Minnesota, New York, North Carolina and South
Carolina
LENNAR CORPORATION AND SUBSIDIARIES
Supplemental Data
(Dollars in thousands)
(unaudited)
August 31,
2006 2005
Homebuilding debt $2,784,074 2,780,331
Stockholders' equity 5,930,798 4,719,312
Total capital $8,714,872 7,499,643
Homebuilding debt to total capital 31.9% 37.1%
SOURCE Lennar Corporation
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