Lennar Corp (LEN)

Lennar Corp (LEN) reported earnings for the second fiscal quarter ending May 31, 2008, and held a conference call to discuss the report.

Financial Highlights

Revenues - $1.1 billion.
Net Loss - $120.9 million.
EPS - ($0.76) per diluted share.

The net loss and EPS number above include a $137.0 million charge for total valuation adjustments and write-offs of option deposits and pre-acquisitions costs and financial services notes receivable.

163 joint ventures.
57 have recourse debt.
31 have non-recourse debt.
75 have no debt.

Recourse indebtedness JV exposure - $807 million.
Net recourse indebtedness JV exposure - $613 million.
Partner’s equity - $1.2 billion.

Cash - $882.4 million.
Homebuilding debt - $2.31 billion.
Net Homebuilding debt - $ 1.43 billion.
Homebuilding debt to total capital - 39.5%.
Net Homebuilding debt to total capital - 28.7%.
No borrowings on revolver.

60% of closed loans were government this quarter (FHA mortgage) - up from 19% last quarter.

Management Comments

Housing Macro

"The housing market has continued to deteriorate throughout the first half of 2008 and...we expect this trend is going to continue for at least the remainder of the year. The deterioration that unfolded so quickly in the housing market so quickly in the past years has now spread to the overall economy."

"I am asked regularly as to whether or not we are at the bottom. I feel overall that we are not there yet. Generally speaking there are not yet signs of stabilization in the field. Demand patterns are inconsistent and erratic and we find that there is a constant and increasing flow of foreclosures that are maintaining downward pressure on prices and appraisals. In many markets it is apparent that the flow of foreclosed homes is expanding rather than subsiding."

"While there are some who still suggest we might avoid a recession and believe the economy will continue to grow, though at a slower pace, their case is becoming more and more difficult to make in the face of rising unemployment data, record low consumer confidence figures and a credit crisis that is constraining the movement of capital."

On Inventory

"The positive news from the field relative to some markets is that inventory of finished homes is coming down. The number of open, competing, new home communities is declining and the number of builders is also declining."

On Impairments

"...Aggregate levels of impairment and losses are more the nature of clean up rather than reconciliation to unknown market conditions. We have done the heavy lifting on impairment and are now situated with stated assets that can and will produce improving margins when the rate of declining market pricing subsides. We are very confident that even with continued degradation of market conditions our stated asset base will not suffer nearly the levels of impairment we saw in 2007."

On Land Source

"...that venture has now gone into bankruptcy...the $1.2 billion of debt is non-recourse and that Lennar’s investment on our books is zero. So as large as this asset might seem the potential impact to the company is not material."

Previous article on Lennar here, here and here.

Sphere: Related Content