Earnings per share
Lennar (LEN) reported net earnings of $281.6 million, or $1.21 per share—compared to its net income of $245.3 million, or $1.07 per share, a year ago. The number represents a sizable beat. However, Lennar gave up $1.18 to close at $47.50. Since the stock market had a big post-FOMC (Federal Open Market Committee) meeting swoon, it’s hard to read too much into Lennar’s performance that day.
Lennar Financial Services contributed operating income of $33.8 million—compared to $30.2 million the year before. Rialto Management had operating earnings of $7.6 million. Lennar Multifamily had earnings of $10 million after losing $6 million the year before. If you look at the building permits data, there’s a lot of growth in multifamily construction. Expect this group to rise in importance going forward.
Lennar finished the quarter with cash and equivalents of $893 million. It also issued $400 million of senior debt to repay credit facilities and use for general corporate purposes.
So far, it doesn’t appear that the problems in the high-yield markets impacted the builders. Generally, the builders can issue investment-grade debt. The Third Avenue problems are primarily in the energy patch. If the crisis builds, it could become a problem.
The big homebuilders—including D.R. Horton (DHI), Toll Brothers (TOL), PulteGroup (PHM), and KB Home (KBH)—have greater access to highly attractive financing terms in the capital markets than the smaller builders. The smaller builders have to rely on bank financing. In the capital markets, it has been a case of the “haves” versus the “have-nots.”
The issue of credit also extends to borrowers. Right now, only government loans and super-high-quality jumbo loans are happening. If it doesn’t fit in the box, it’s a problem. Lennar has a captive mortgage originator. This helps alleviate that issue. Investors who are interested in trading the sector as a whole should look at the SPDR S&P Homebuilders ETF (XHB) or the iShares U.S. Home Construction ETF (ITB).