Much like Toll Brothers (TOL) late last month [Aug 22, 2012: Toll Brothers with Solid Report; Says "Most Sustained Demand We've Seen in 5 Years"], Lennar (LEN) reported an outstanding report Monday as the homebuilders left standing (publicly owned, as many private builders went bust) are reaping the benefits from a mild rebound in the housing market. However, as is typical in the market which nowadays has a timeline of a few hours at a time, this data has been completely forgotten today as the entire housing sector takes serious lumps due to a slightly worse than expected housing report. (Apparently every housing related stock needs to fall 3-5%+ based on 6000 less sales across the country on annual basis!)
- Sales of newly built homes in the U.S. fell slightly in August as prices rose a record 11.2%, but demand remained at a two-year high. Sales of new homes dipped to an annual rate of 373,000 in August from 374,000 in July, the Commerce Department said Wednesday. Yet the pace of sales in July, originally reported as 372,000, was the highest since April 2010.
- Economists polled by MarketWatch had forecast new home sales to rise to a seasonally adjusted 380,000.
- The median sales price of a new home surged 11.2% last month to $256,900, the biggest one-month increase ever recorded. Prices have climbed 17% over the past year and are at the highest level since spring 2007.
- The number of home available for sale in August remained at a record low 141,000.
Much like the automakers who have streamlined their business dramatically in the U.S. over the past few years, the homebuilders do not need peak (or bubble) housing construction to deliver big profits. We are seeing this in the domestic auto industry as very profitable U.S. operations are happening with yearly sales at millions less than peak, and now we are seeing a similar pattern in the builder space. But again, that was Monday and this is Wednesday, so forget the company fundamentals in this market.
But let's turn back to reality at the companies and look at Lennar's data.
- Lennar said on Monday customer orders for new homes grew 44% to 4,198 homes, the sixth straight quarter of growth. Average selling prices rose 4 percent, to $258,000.
- Gross margins rose 2.1 percentage points to 23.2 percent, with Lennar selling homes with fewer incentives at steeper prices in higher-margin communities.
- Backlog rose 79 percent versus 61 percent the previous quarter.
- Revenue from home sales rose 33 percent. Total revenue jumped 34 percent to $1.10 billion – the highest in nearly four years.
- Lennar's profit was $87.1 million, or 40 cents a share, compared with $20.7 million, or 11 cents a share in the same quarter last year. Analysts on average expected earnings of 28 cents per share, excluding one-time items, on revenue of $1.05 billion, according to Thomson Reuters I/B/E/S.
- Lennar's chief executive said he was optimistic about the future for the sector, but described the market in measured terms. "The housing depression was a national phenomenon; the housing recovery is very local," CEO Stuart Miller said on a earnings call with analysts.
Now the question is of course how much of these good results are priced in. And as we can see today just a slight hiccup in a government report can slam these names, justly or not.
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog