Lennar’s Strong Financial Performance Amid Shifting Market Conditions

Lennar, one of the largest homebuilding companies in the United States, has reported impressive financial results for the third quarter and first nine months of fiscal year 2024. Despite facing some market challenges, the company has demonstrated its ability to adapt and deliver solid earnings.

Overview of Operations

Lennar’s business is seasonal, with higher levels of new home order activity in the second and third fiscal quarters and increased deliveries in the second half of the fiscal year. However, various factors can impact these seasonal patterns.

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

Financial Performance Highlights

Homebuilding Segment:

• Revenues from home sales increased 9% in the third quarter of 2024 and 10% in the first nine months of 2024, primarily due to a higher number of home deliveries, partially offset by a decrease in average sales prices.
• Gross margins on home sales were 22.5% in the third quarter of 2024 and 22.3% in the first nine months of 2024, compared to 24.4% and 22.9% in the respective periods of 2023. The decrease was mainly due to lower revenues per square foot and higher land costs, partially offset by lower construction costs.
• Selling, general, and administrative (SG&A) expenses as a percentage of revenues from home sales decreased to 6.7% in the third quarter of 2024 and increased to 7.4% in the first nine months of 2024, compared to 7.0% and 7.0% in the respective periods of 2023. The decrease in the third quarter was primarily due to lower broker commissions and the benefits of Lennar’s technology initiatives, while the increase in the first nine months was mainly due to higher digital marketing, advertising, professional, and insurance costs.

Financial Services Segment:

• Operating earnings 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.
• Operating earnings were $422.7 million ($420.5 million net of noncontrolling interests) in the first nine months of 2024, compared to $340.3 million ($338.7 million net of noncontrolling interests) in the first nine months 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:

• Operating earnings 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. The increase was 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.
• Operating earnings were $42.8 million ($43.1 million net of noncontrolling interests) in the first nine months of 2024, compared to an operating loss of $38.5 million ($38.4 million net of noncontrolling interests) in the first nine months of 2023. The increase was also due to the net gain from the sale of LMV Fund I assets, partially offset by the write-down of non-core assets.

Lennar Other Segment:

• Operating earnings were $20.1 million in the third quarter of 2024, compared to an operating loss of $26.2 million in the third quarter of 2023. The improvement was primarily due to mark-to-market gains on Lennar’s publicly traded technology investments.
• Operating loss was $47.3 million in the first nine months of 2024, compared to an operating loss of $85.8 million in the first nine months of 2023. The reduced loss was primarily related to operating losses from certain strategic investments, which was partially offset by $12.5 million of mark-to-market gains on Lennar’s publicly traded technology investments and a $46.5 million one-time gain on the sale of a technology investment.

Homebuilding Segment Analysis

Lennar’s Homebuilding segment is divided into four regional divisions: East, Central, Texas, and West. The company also has a Homebuilding Other category that includes certain urban divisions.

In the third quarter of 2024, the East division experienced a decrease in revenues from home sales due to a decline in the average sales price, partially offset by an increase in the number of home deliveries. Gross margins decreased due to lower revenues per square foot and higher land costs, partially offset by lower construction costs.

The Central division saw an increase in revenues from home sales, driven by higher home deliveries, but a decrease in the average sales price. Gross margins declined due to the same factors as the East division.

The Texas division reported an increase in revenues from home sales, primarily due to more home deliveries, but a decrease in the average sales price. Gross margins decreased year-over-year.

The West division also had higher revenues from home sales, with an increase in home deliveries partially offset by a lower average sales price. Gross margins declined due to the same factors as the other divisions.

For the first nine months of 2024, the trends were similar, with the Homebuilding segments generally experiencing higher revenues from home sales due to increased deliveries, but lower average sales prices and gross margins.

Financial Condition and Capital Resources

At the end of the third quarter of 2024, Lennar had $4.3 billion in cash and cash equivalents and restricted cash, compared to $6.6 billion at the end of fiscal year 2023 and $4.1 billion at the end of the third quarter of 2023.

The company’s Homebuilding debt to total capital ratio was 7.6% at the end of the third quarter of 2024, down from 9.6% at the end of fiscal year 2023 and 11.5% at the end of the third quarter of 2023. This improvement was primarily due to an increase in stockholders’ equity and a decrease in Homebuilding debt.

Lennar’s net Homebuilding debt to total capital ratio, a non-GAAP measure, was -6.9% at the end of the third quarter of 2024, compared to -15.0% at the end of fiscal year 2023 and -2.3% at the end of the third quarter of 2023. The company’s net Homebuilding debt position improved due to the decrease in Homebuilding debt and an increase in Homebuilding cash and cash equivalents.

Strategic Initiatives

Lennar is exploring various transactions to manage its leverage and liquidity, including the potential issuance of additional debt or equity, the repurchase of outstanding debt or common stock, and the acquisition or sale of businesses or assets. The company is also considering a strategic taxable spin-off of a new public company to which it would contribute land and cash, with the goal of accelerating its land-light strategy.

Debt and Liquidity

Lennar’s Homebuilding senior notes and other debt payable, as well as its letters of credit and surety bonds, are detailed in the financial report. The company’s average Homebuilding debt outstanding and average interest rate were $2.5 billion and 4.8%, respectively, in the first nine months of 2024, compared to $3.9 billion and 4.9% in the same period of 2023.

Lennar’s $2.2 billion unsecured revolving credit facility, which includes a $425 million accordion feature, provides additional liquidity and flexibility. As of the end of the third quarter of 2024, the company had no outstanding borrowings under this facility.

The company’s Financial Services segment uses residential mortgage loan warehouse facilities to finance its lending activities until the loans are sold to investors. These facilities are non-recourse to Lennar and are expected to be renewed or replaced when they mature.

Shareholder Returns and Dividends

Lennar has an active stock repurchase program, with $3.9 billion remaining under the current authorization as of the end of the third quarter of 2024. During the first nine months of 2024, the company repurchased 10.6 million shares of its Class A and Class B common stock.

Lennar has also continued to pay quarterly cash dividends on its Class A and Class B common stock. The company paid a dividend of $0.50 per share in the third quarter of 2024 and has approved a dividend of $0.50 per share for the fourth quarter.

Outlook and Conclusion

Lennar’s strong financial performance in the third quarter and first nine months of fiscal year 2024 demonstrates the company’s ability to navigate the evolving market conditions. Despite facing some headwinds, such as lower average sales prices and increased construction costs, Lennar has maintained solid profitability and a healthy balance sheet.

The company’s diversified business model, with contributions from its Homebuilding, Financial Services, and Multifamily segments, has helped to mitigate the impact of market fluctuations. Lennar’s strategic initiatives, including the potential spin-off of a land-focused company, are aimed at further strengthening its position and enhancing shareholder value.

As the housing market continues to evolve, Lennar’s focus on operational efficiency, financial discipline, and innovative solutions positions the company well to capitalize on future opportunities and deliver sustainable growth for its shareholders.