Lennar’s Strong Financial Performance Amid Market Challenges

Lennar Corporation, one of the nation’s leading homebuilders, has reported impressive financial results for the third quarter and first nine months of fiscal year 2024, despite facing headwinds in the housing market. The company’s diversified business model, focus on cost savings, and strategic investments have enabled it to navigate the current environment effectively.

Overview of Financial Performance

In the third quarter of 2024, Lennar’s net earnings attributable to the company were $1.2 billion, or $4.26 per diluted share, compared to $1.1 billion, or $3.87 per diluted share, in the same period last year. Excluding one-time items, the company’s net earnings were $1.1 billion, or $3.90 per diluted share, in the third quarter of 2024, compared to $1.1 billion, or $3.91 per diluted share, in the third quarter of 2023.

For the first nine months of 2024, Lennar’s net earnings attributable to the company were $2.5 billion, compared to $2.6 billion in the same period of 2023. The company’s strong performance was driven by increased home deliveries, improved profitability in its Financial Services and Multifamily segments, and strategic investments.

Homebuilding Segment Performance

Lennar’s Homebuilding segment, which accounts for the majority of its business, delivered solid results in the third quarter and first nine months of 2024. Revenues from home sales increased by 9% in the third quarter and 10% in the first nine months, primarily due to a 16% and 18% increase in the number of home deliveries, respectively. However, the average sales price of homes delivered decreased by 6% in both the third quarter and first nine months, as the company used more incentives and adjusted its product mix to meet market conditions.

Gross margins on home sales were 22.5% in the third quarter and 22.3% in the first nine months of 2024, compared to 24.4% and 22.9% in the same periods of 2023. The decrease in gross margins was primarily due to a decline in revenues per square foot, which was partially offset by a reduction in costs per square foot and lower material costs.

Selling, general, and administrative (SG&A) expenses as a percentage of revenues from home sales decreased to 6.7% in the third quarter and increased to 7.4% in the first nine months of 2024, compared to 7.0% and 7.0% in the same periods of 2023. The decrease in the third quarter was due to a reduction in broker commissions and the benefits of the company’s technology initiatives, while the increase in the first nine months was primarily driven by higher digital marketing and advertising costs, professional expenses, and insurance costs.

Financial Services Segment Performance

Lennar’s Financial Services segment, which provides mortgage financing, title, and closing services, reported strong results in the third quarter and first nine months of 2024. Operating earnings for the segment were $144.4 million ($143.6 million net of noncontrolling interests) in the third quarter of 2024, compared to $149.0 million ($148.3 million net of noncontrolling interests) in the third quarter of 2023. The decrease was primarily due to lower lock volume and margin in the mortgage business, partially offset by higher volume in the title business.

For the first nine months of 2024, operating earnings for the Financial Services segment were $422.7 million ($420.5 million net of noncontrolling interests), compared to $340.3 million ($338.7 million net of noncontrolling interests) in the same period of 2023. The increase was primarily due to higher volume from increased capture rate and Lennar deliveries in the mortgage business, as well as increased profitability in the title business.

Multifamily Segment Performance

Lennar’s Multifamily segment, which focuses on developing and managing multifamily rental properties, reported a significant improvement in its performance. Operating earnings for the segment were $78.9 million ($79.0 million net of noncontrolling interests) in the third quarter of 2024, compared to an operating loss of $8.7 million in the third quarter of 2023. For the first nine months of 2024, operating earnings for the Multifamily segment were $42.8 million ($43.1 million net of noncontrolling interests), compared to an operating loss of $38.5 million ($38.4 million net of noncontrolling interests) in the same period of 2023.

The improvement in the Multifamily segment’s performance was primarily due to a $179.0 million one-time net gain from the sale of assets in the LMV Fund I, partially offset by a one-time $90.0 million write-down of non-core assets as the company focuses on immediately monetizing these assets.

Lennar Other Segment Performance

Lennar’s Other segment, which includes the company’s fund investments and strategic technology investments, reported operating earnings of $20.1 million in the third quarter of 2024, compared to an operating loss of $26.2 million in the third quarter of 2023. For the first nine months of 2024, the Lennar Other segment reported an operating loss of $47.3 million, compared to an operating loss of $85.8 million in the same period of 2023.

The improvement in the Lennar Other segment’s performance was primarily due to $39.1 million in mark-to-market gains on the company’s publicly traded technology investments in the third quarter of 2024, as well as a $46.5 million one-time gain on the sale of a technology investment in the first nine months of 2024. These gains were partially offset by operating losses from certain strategic investments.

Outlook and Strategic Initiatives

Lennar’s strong financial performance in the third quarter and first nine months of 2024 demonstrates the company’s ability to adapt to the changing market conditions. The company’s focus on cost savings, strategic investments, and diversification across its business segments have been key drivers of its success.

Looking ahead, Lennar is planning a strategic taxable spin-off of a new public company to which it will contribute land and cash with a value of approximately $6 billion to $8 billion. The new company is expected to qualify as a real estate investment trust (REIT) and will operate as a permanent capital vehicle that will acquire and develop homesites, giving options to acquire them on a “just-in-time” basis for Lennar and other customers. This spin-off is aimed at accelerating Lennar’s land-light strategy by removing much of the land assets from its balance sheet.

Additionally, Lennar continues to explore various transactions to manage its leverage and liquidity positions, take advantage of market opportunities, and increase its revenues and earnings. These transactions may include the issuance of additional debt or equity, the repurchase of outstanding debt or common stock, acquisitions, and strategic investments in its non-homebuilding businesses.

Conclusion

Lennar’s strong financial performance in the third quarter and first nine months of 2024 demonstrates the company’s ability to navigate the current market challenges. Its diversified business model, focus on cost savings, and strategic investments have enabled it to deliver solid results across its Homebuilding, Financial Services, and Multifamily segments. The planned spin-off of a new REIT company is a strategic move to further strengthen the company’s balance sheet and accelerate its land-light strategy. Lennar’s management remains committed to exploring various opportunities to enhance shareholder value and position the company for long-term success.