Strength Of U.S. Housing Market Propels Homebuilder Lennar In Q1

The second-largest U.S. homebuilder by construction, Lennar Corp., reported higher-than-expected profit for the first quarter of 2016, beating analysts’ estimates in both earnings and revenue.

The Miami-based company reported a net income of $144.1 million, or 63 cents a share, for the three months through February, compared with $115 million, or 50 cents a share, from the previous year. In a statement, Lennar said the average sales price of homes delivered increased 12 percent year-over-year to $365,000, while deliveries rose 12 percent and backlog increased 13 percent.

According to Lennar, the company was able to load up on land at distressed prices after the real estate crash, helping the company operate with relatively large profit margins. The company’s operating earnings in Q1 were $220.6 million, a six percent increase compared to the previous year of $207.6 million.

“We continue to believe that the housing market is continuing its slow and steady recovery driven by years of under production, tight inventory levels, attractive interest rates and the lowest unemployment levels since 2008,” said Lennar Chief Executive Stuart Miller.

Keefe, Bruyette & Woods Inc. analysts Jade Rahmani and Ryan Tomasello wrote in a research note after the results were released:  “We continue to believe Lennar’s strong homebuilding operations, unique land sourcing and potential for value create through ancillary businesses justify a premium valuation.”

In Lennar’s quarterly conference call, Miller explained the two biggest reasons for the current shortage in U.S. housing supply.

“Land and labor shortages will continue to constrain supply and constrain the ability to quickly respond to growing demand while the mortgage market will continue to constrain purchaser’s access to mortgages.

“Our results reflect slow but steady growth in the over home-building market as our new orders increase 10 percent year-over-year,” said Miller. “Even while continued labor shortages and land and construction cost increases have tested our ability to match sales and delivery pace.”

The month of February saw the number of new home purchases increase for the fourth time in five months, as sales advanced two percent to a 512,000 annualized pace following a 502,000 rate in January.

Share for Lennar increased 3.2 percent yesterday, jumping to $48.19 and Wall Street analysts expect profits of 52 cents a share on sales of $1.9 million.

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