Lennar Corporation — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended August 31, 2021, compared with the corresponding 2020 periods. Lennar builds and sells homes and also operates mortgage and title services, multifamily development, and strategic investment businesses.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $6.94 billion | $5.87 billion | $18.70 billion | $15.66 billion |
| Net earnings attributable to Lennar | $1.407 billion | $666 million | $3.240 billion | $1.582 billion |
| Diluted EPS | $4.52 | $2.12 | $10.36 | $5.03 |
| Homebuilding gross margin on home sales | 27.3% | 23.1% | 26.2% | 21.8% |
| Operating cash flow | Not stated for the quarter in the provided filing text | $1.312 billion | $2.897 billion |
- Q3 home deliveries increased 10% to 15,199; average delivered home price rose 8% to $428,000. Nine-month deliveries rose 14% to 42,006, at an average price of $414,000.
- Net earnings included Lennar Other realized and unrealized gains of $495 million in Q3 and $847 million for the nine-month period, largely from publicly traded strategic investments and the sale of the residential solar business. These gains materially boosted reported earnings.
- Cash and restricted cash totaled $2.812 billion at August 31, 2021. Homebuilding debt was $5.543 billion; homebuilding debt-to-total-capital was 21.2%, versus 29.5% a year earlier. Net homebuilding debt-to-total-capital was 12.4%, versus 23.3% a year earlier.
- No borrowings were outstanding under the $2.5 billion unsecured revolving credit facility; the company reported covenant compliance and substantial headroom. Financial Services warehouse borrowings were $900 million residential and $55 million commercial.
- Total assets were $32.744 billion and total equity was $20.780 billion at August 31, 2021. Homebuilding inventory was $19.106 billion, up from $16.925 billion at November 30, 2020.
Changes versus the prior comparable period
- Q3 total revenue increased approximately 18%, and Lennar-attributable earnings more than doubled. Homebuilding revenue grew 19%, reflecting higher deliveries and prices; homebuilding gross margin expanded 4.2 percentage points.
- Q3 Financial Services operating earnings declined to about $112 million from $135 million, primarily due to lower mortgage margins amid increased competition. Multifamily reported a $9 million operating loss, compared with a $5 million loss.
- Q3 Lennar Other operating earnings rose sharply, primarily due to fair-value gains on strategic investments. For the first nine months, cash from operations fell to $1.312 billion from $2.897 billion, largely as inventory investment increased by $2.253 billion.
Outlook, commentary and risks
- Management described housing demand as strong and supply as constrained, while emphasizing that land and construction supply chains were significantly stressed. It cited price appreciation as having outpaced cost-per-square-foot increases, supporting margins.
- Management reduced fiscal 2021 year-end community-count growth expectations to approximately 7% from 10%, and Q4 delivery guidance to approximately 18,000 homes from 19,000–21,000. Q4 gross margin was expected at about 28% and SG&A at about 6.7%, subject to delivery volumes.
- Looking toward 2022, management expected continued market strength and double-digit growth in sales, starts, deliveries and community count. These are forward-looking expectations, not guarantees.
- Management reported a 3.3-year supply of owned land, down from 3.8 years a year earlier, and controlled homesites of 53%, up from 35%. It continued to develop a potential spin-off asset-management business; its structure and scope remained under consideration.
- Key stated risks include COVID-19 effects, construction-material and labor shortages and cost inflation, higher interest rates or reduced mortgage availability, weaker housing or multifamily demand, volatility in public investment values, land acquisition and entitlement challenges, and potential inventory impairments. The company also faces ordinary-course construction, property and mortgage representation-and-warranty claims; management did not expect pending matters to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings growth and EPS came from noncash or market-sensitive investment gains, and how those investments performed after quarter-end.
- Whether supply-chain constraints, cost inflation and lower-than-planned deliveries affect Q4 guidance, margins and the expected 2022 growth trajectory.
- Whether inventory growth converts into deliveries and operating cash flow, given the decline in nine-month operating cash flow.
- Debt reduction, land-control strategy, share repurchases and liquidity, including the planned October 2021 redemption of $600 million of senior notes.
- Potential losses from mortgage loan repurchase claims, warranty claims, land options, joint ventures and other contingencies; review the filing’s detailed exposures and assumptions.