Lennar Corporation (LEN, Financial) experienced a setback as it missed revenue expectations in its Q1 earnings report, ending an eight-quarter streak of surpassing EPS and revenue estimates. This occurred despite the stock reaching all-time highs in anticipation of strong results fueled by a robust housing market.
Key points from the report include:
- New orders surged by 28% to 18,176, exceeding the company's expectations, thanks to significant price cuts and incentives aimed at countering the effects of higher mortgage rates.
- The average selling price of homes dropped by over 8% year-over-year to $411,000, with lower construction costs unable to offset the decline in home selling prices, resulting in a gross margin on home sales decrease to 21.8%.
- Unlike Toll Brothers (TOL, Financial), which caters to a wealthier demographic less affected by mortgage rates, Lennar, along with peers D.R. Horton (DHI, Financial) and KB Home (KBH, Financial), had to rely on incentives to maintain demand.
- Lennar is optimistic about a less promotional and strong spring selling season, forecasting new orders between 20,900 and 21,300, indicating an 18% growth at the midpoint, with average home selling prices expected to rise to between $420,000 and $425,000.
- The company remains bullish in the long term, poised to benefit from the chronic undersupply of housing and favorable demographics as younger generations enter the home-buying market.
Despite the anticipation and a 12% year-to-date rally, Lennar's stock faced a sell-the-news reaction post-earnings, attributed to the revenue miss and decline in average home selling prices. However, a promising outlook for the spring season is expected to drive strong Q2 results for LEN.
