By Tomi Kilgore, MarketWatch
Shares of Lennar Corp. turned around into negative territory Tuesday, as a weak third-quarter outlook unveiled in a midday conference call with analysts overshadowed big earnings and revenue beats reported before the open.
The home builder’s stock /zigman2/quotes/202536373/composite LEN +0.45% had initially rallied as much as 6.4% in premarket trading, and was up as much as 3.6% moments after the opening bell, after Lennar reported fiscal second-quarter results that were well above consensus analyst expectations.
The pullback started picking up steam after 10 a.m. Eastern, following the release of new-home sales data for May that fell below expectations. Read more about new-home sales.
Then shares appeared to fall off a cliff after the post-earning conference call started at 11 a.m. The fourth member of the leadership team to present on the call was Chief Financial Officer Diane Bessette, who was tasked with providing third-quarter guidance.
The stock then tumbled as much as 7.1% intraday, before paring some losses to close down 6.2% at a three-month low.
The following table shows the guidance Bessette provided, according to a transcript provided by FactSet, and the average estimate of analysts surveyed by FactSet.
|Category||Guidance for Q3||FactSet consensus|
|Earnings per share||$1.25 to $1.35||$1.50|
|New orders||12,500 to 12,800||13,196|
|Deliveries||13,000 to 13,250||14,020|
|Average sales price||$385,000 to $390,000||$402,430|
|Gross margin||20.25% to 20.50%||20.8%|
|Financial Services earnings||Between $52 million and $55 million||Operating income of $56 million|
|Multifamily earnings||About $5 million||Operating income of $2.4 million|
|Lennar Corp., FactSet|
In other guidance provided by the executive team, Executive Chairman Stuart Miller said current market conditions weren’t “robust,” but they would be considered “solid.” Chief Executive Richard Beckwitt followed by saying average sales prices “will continue to move lower going forward,” as new entry-level communities come online. And President Jon Jaffe said labor shortages continue to push up labor costs, tariffs imposed on Chinese goods are pushing up materials costs and supply constraints are increasing land costs.
Analyst Kenneth Leon at CFRA reiterated his hold rating on Lennar’s stock, but cut his price target to $50 from $53.
The call followed an results for the quarter to May 31, in which net income rose to $421.5 million, or $1.30 a share, from $310.3 million, or 94 cents a share, in the year-ago period. The FactSet consensus for earnings per share was $1.15.
Total revenue grew 1.9% to $5.56 billion, above the FactSet consensus of $5.03 billion, as homebuilding revenue rose 2.6% to $5.20 billion to beat expectations of $4.78 billion.
Homebuilding gross margin was 20.1%, just shy of the FactSet consensus of 20.2%, as the average price of homes delivered fell 1.5% to $407,000 while sales incentives increased 15.7% to $26,600 per home delivered.
“While lower rates have helped drive demand, we have continued to offer incentives, although at reduced levels, to keep our homebuilding business on track to deliver over 50,000 homes in 2019,” said CEO Beckwitt.
Despite Tuesday’s weakness, Lennar’s stock has gained 23.2% year to date, while the SPDR S&P Homebuilders exchange-traded fund /zigman2/quotes/202739297/composite XHB +0.60% has rallied 24.5% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.48% has gained 16.4%.