Lennar Reports Impressive Result For Q2 2020

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Lennar Reports Impressive Result For Q2 2020

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Lennar Corporation (NYSE: LEN) on 15th June 2020, announced the result for the second quarter of 2020. Period of this quarter ended on 31st May 2020. In this quarter company has done better than the estimation of the analyst, although revenue in this quarter declined by 5% Lennar managed to increase its net income by 27% over a year.

Financial Highlights of Q2 2020 results

  1. Revenue: In Q2 2020, revenue generated by the company was $5,287.3 million, decrease by 5% from $5,562.8 million generated in Q2 2019.
  2. Corporate general and administrative expenses: Lennar’s Corporate general and administrative expenses in Q2 2020 were $83.4 million, up by 10% from $76.1 million spent in Q2 2019.
  3. EBIT: Lennar’s EBIT in the second quarter of 2020 was $676.5 million, increased by 21% from $559.3 million, earned in the second quarter of 2019.
  4. Income Tax: In this quarter company has paid income tax of $160.4 million, which is 31% of PBT, compared to 34% paid in the same period of the previous year.
  5. Cash and Cash Equivalents: Cash and cash equivalents in the second quarter of 2020 was $1,398.6 million.
  6. Net Income: Lennar’s Net Income in the second quarter of 2020 was $517.4 million, increased by 27% from $421.4 million earned in the second quarter of the previous year.
  7. Diluted EPS: Diluted EPS of Lennar in Q2 2020 was $1.65 compared to $1.30 in Q2 2019.

COVID-19 Crisis  

As most states and municipalities across the countries considered housing as an essential service, so the company was buying and selling the properties even during the crisis. As social distancing norm was imposed, the management team was working from home and daily meetings were conducted thought video conferencing. The company was successful in monitoring the operations across all the 38 division via messaging and other available technology. Lennar is also using the technology to collect the data using a common data model, which is then turned into a real-time model and then discussed at daily video conferencing meeting.

As lockdown norms were imposed, the company thought its website leaner.com allowed the customer to interact with the consultant online, phone and FaceTime. The customer was also having the option to view the products online using three-dimensional technology while interacting with the consultants. Option for viewing the product using self-guide was also available. Lennar claims that the mortgage process has been digitized and made simpler for easily getting the loans. Company is using digital signing and negotiation digital for closing the deal. Lennar is planning to launch a virtual new home orientation process, so that complete home can be viewed via FaceTime and fount door can be self-accessed using code.

Segment Information

Lennar operates the business in four different segments. In the second quarter of 2020, all the segments have witnessed a decline in revenue except Lennar other segments as the company sold fewer homes due to lockdown orders.

  1. Homebuilding: Revenue generated by this segment was $4,949.4 million in Q2 2020, decreased by 5% from $5,195.5 million earned in Q2 2019. Revenue in the segment declined due to an average decrease in the sales price of the home by 4%. New homes delivered by the company in this quarter was 12,672 which almost remain flat compared to 12,729 homes in the second quarter of the previous year. Order for new homes declined by 6%, which was 1,245 homes in Q2 2020 compared to 1,325 homes in Q2 2020. Revenue generated from the sales of homes, land and other homebuilding was $4,925 million, $19.8 million and 4.5 million, respectively. Operating income of this segment was $636.1 million this quarter, increased by 5% from $608.3 million in Q2 2019.
  2. Financial Services: This segment was able to generate revenue of $196.2 million in Q2 2020, decreased by 4% from $204.2 million earned in the same period of the previous year. Although revenue decline, this segment was able to increase operating income by 162%. In Q2 2020, operating income of this segment was $147.3 million compared to $56.2 million in Q2 2019. Increment in operating income was a due improvement in the mortgage business, increase in volume and margin, and reductions in loan origination costs and $5 million earnings on the sale of a servicing portfolio.
  3. Multifamily: In Q2 2020 revenue generated by this segment was $123.1 million, down by 16% from $147.4 million generated in Q2 2019. Operating loss reported by this segment $638 thousand. The financial result of this segment is not impressive, but the company managed to reduce the operating loss by $3.6 million from a loss of $4.3 million in the second quarter of 2019.
  4. Lennar others: Revenue generated in the second quarter of 2020 by this segment was $18.5 million increased by 18% from $15.6 million in the second quarter of 2020. Although this segment has increased its revenue, it failed to increase its operating income. This segment has reported an operating loss of $18 million in this quarter compared to an operating profit of $1.8 million in the same quarter of the previous year. Operating losses in this segment were due to $25 million write-down of assets held by Rialto legacy funds because of disruption in the capital markets caused by an economic slowdown due to COVID-19.

Final Take

Lennar in its guidance claims that it will get an order of 12,800 to 13,000 new homes in the third quarter and 12,000 to 12,250 new homes in the fourth quarter of 2020. In Q3 and Q4 of 2020, company plans to have gross margin in home sales between 21.5% to 22%. The company witnessed a delay in the order of new home from mid-March to April end, but business started to bounce back from May. If the mortgage rate remains low and the overall economy starts improving, it will be possible for the Lennar to achieve the estimated target.

 

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