Lennar Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended February 28, 2022; comparisons are with the three months ended February 28, 2021 unless otherwise noted. Lennar is a homebuilder with Financial Services, Multifamily and other operations.
Financial and operating performance
| Metric | Q1 2022 | Prior period / change |
|---|---|---|
| Total revenue | $6.204 billion | $5.325 billion |
| Homebuilding revenue | $5.752 billion | $4.943 billion |
| Net earnings attributable to Lennar | $503.6 million; diluted EPS $1.69 | $1.001 billion; diluted EPS $3.20 |
| Home sales and gross margin | $5.722 billion; 26.9% | $4.891 billion; 25.0% |
| Operating cash flow | $(72) million | $386 million provided |
| Cash and restricted cash | $1.606 billion at February 28 | $2.956 billion at November 30, 2021 |
| Homebuilding debt | $4.639 billion | $4.652 billion at November 30, 2021 |
| Homebuilding debt / total capital | 18.3% | 18.3% at November 30, 2021; 24.0% a year earlier |
Home deliveries increased 2% to 12,538, while average sales price rose 15% to $457,000. New orders rose to 15,747 from 15,570; backlog increased to 27,335 homes valued at $13.56 billion, versus 22,077 homes valued at $9.46 billion.
Homebuilding gross margin improved year over year, while Financial Services operating earnings fell to $90.8 million from $146.2 million, primarily due to lower mortgage net margins and competition. Multifamily operating earnings were $5.4 million, compared with a $0.9 million loss.
GAAP earnings included a $395.2 million unrealized loss on publicly traded technology investments, versus a $469.7 million unrealized gain in the prior-year quarter. Excluding those unrealized items, management reported net earnings of $800.2 million, or $2.70 per diluted share, compared with $642.7 million, or $2.04 per diluted share. These are management-presented non-GAAP comparisons.
Liquidity, debt and capital allocation
Operating cash use primarily reflected a $1.9 billion inventory increase, including land purchases, development and construction spending. Financing cash use was $1.258 billion, including $581 million of stock repurchases and $110 million of dividends; cash also declined with net repayments on Financial Services warehouse facilities. Lennar had $1.367 billion of Homebuilding cash, no borrowings on its $2.5 billion revolving credit facility, and reported $3.9 billion of available capacity including Homebuilding cash. Net Homebuilding debt to total capital was 13.7%, up from 8.4% at November 30, 2021.
In March 2022, the Board authorized an additional stock repurchase amount of up to the lesser of $2 billion or 30 million shares, with no expiration date. The company said it was paying down debt as it came due; its next listed senior-note maturity was in 2022.
Outlook, commentary and risks
Management described housing demand as strong but cited constrained new- and existing-home supply, supply-chain disruption, rising interest rates and inflation. Homebuilding time-to-build had increased by about eight weeks year over year, and construction costs were rising. Management said it was timing home sales to account for cost increases and reported that controlled homesites rose to 58% of total homesites from 45% a year earlier; owned land supply remained 3.4 years.
- Q2 2022 delivery guidance: 16,000–16,300 homes.
- Q2 2022 gross margin guidance: 28.0%–28.25%; SG&A guidance: 6.8%–7.0%.
- Management projected a low double-digit year-over-year increase in year-end 2022 community count and expected results to strengthen through the year as higher starts translate into deliveries.
- Lennar continued work on a proposed spin-off of a non-homebuilding asset-management business spanning multifamily, single-family rentals and land strategies. The filing describes it as a plan, not a completed transaction.
- Risks highlighted include material and labor shortages and costs, mortgage availability and rates, weaker housing or rental demand, land acquisition and inventory valuation, investment-value declines, joint-venture commitments, and refinancing or other financing risks. The filing reported no material change to previously disclosed risk factors.
Management stated that ordinary-course legal claims and lawsuits were not expected to have a material adverse effect. The filing also notes potential mortgage-loan repurchase or loss claims related to representations and warranties; management believes related reserves are adequate, but actual losses could exceed estimates.
Important facts for investors to verify
- How much reported earnings and future volatility reflect mark-to-market changes in technology investments, and how the non-GAAP earnings comparison reconciles to GAAP.
- Whether supply-chain constraints, build times and input costs affect delivery volume and the guided gross margins.
- Whether the sizable backlog converts to closings, including the effect of cancellations, financing conditions and changing demand.
- How inventory investment, repurchases and dividends affect cash, net leverage and liquidity as debt maturities approach.
- The timing, structure, funding and execution risks of the proposed spin-off, alongside exposure to joint ventures, guarantees and mortgage claims.