Lennar Corporation reported second-quarter earnings well above Wall Street’s expectations, saying the nation’s battered housing market has “commenced a slow and steady recovery process.’’
“I’m increasingly optimistic we’re seeing a real bottom in housing,” Stuart Miller, chief executive officer of the Miami-based company, told analysts in an earnings conference call Wednesday.
“While the downturn was national, the recovery is decidedly very local,” with pockets in the most desirable locations stabilizing and recovering first, while other areas languish, Miller added.
Lennar posted net income of $452.7 million, or $2.06 a diluted share, including a large tax-related gain, for the quarter ended May 31. That compared with year-ago net income of $13.8 million, or 7 cents a diluted share. Excluding the tax-related gain, Lennar reported net income of 21 cents a share, beating analysts’ consensus estimate of 17 cents a share.
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It was Lennar’s ninth consecutive quarter of profitability.
Shares of Lennar rose 4.8 percent to close at $28.70 on the New York Stock Exchange.
Second-quarter revenue rose 22 percent to $930.2 million from $764.5 million a year earlier.
Lennar said it delivered 3,222 homes in the latest quarter, a 20 percent increase over the year-ago period. Meanwhile, new orders climbed 40 percent in the period, and its backlog jumped 61 percent from the year-ago quarter.
Amid the improving landscape, Lennar has been able to raise prices a bit and pare back on some incentives to buyers. Its operating margin widened to 9.2 percent, the best level of profitability since the second quarter of 2006.
Lennar officials declined to comment on published reports by The Wall Street Journal and Bloomberg this week that the company is in talks with China Development Bank for funding for two San Francisco development projects at Treasure Island and Hunters Point Shipyard. Without confirming or denying the reports, Miller told analysts the company has a lot of irons in the fire and, “We will make material announcements as appropriate.”
Among the favorable winds blowing for homebuilders are the record low mortgage rates that make buying a home more affordable.
With home prices stabilizing and even turning higher in some markets, “purchasers are beginning to feel the pressure to make a home purchase, so they do not miss the boat,” Miller said.
The inventory of existing homes for sale has fallen sharply recently, leading more prospective buyers to think about new homes as an option.
Meanwhile, spiraling rents often make buying a home a cheaper alternative. “Consumers are acutely aware of the monthly payment of renting versus buying,” Lennar’s CEO said.
On the flip side: Tight lending standards continue to make it hard for many consumers to qualify for mortgages, and conservative property appraisals make it difficult for homebuilders to raise prices.