Lennar Corporation — Q2 2021 Form 10-Q
Business context and period: Homebuilder and related mortgage/title, multifamily, and investment businesses. Fiscal second quarter and six months ended May 31, 2021; comparisons are with the corresponding 2020 periods. Unaudited interim results.
Financial and operating performance
| Metric | Three months | Six months |
|---|---|---|
| Total revenue | $6.43 billion, up 22% year over year | $11.76 billion, up 20% |
| Net earnings attributable to Lennar | $831 million vs. $517 million | $1.83 billion vs. $916 million |
| Diluted EPS | $2.65 vs. $1.65 | $5.85 vs. $2.91 |
| Homebuilding revenue | $6.03 billion, up 22% | $10.97 billion, up 20% |
| Home-sale gross margin | 26.1%, vs. 21.6% | 25.6%, vs. 21.1% |
| Operating cash flow | $718 million for six months, vs. $1.31 billion | |
| Cash and restricted cash | $2.78 billion at May 31, 2021, vs. $2.93 billion at November 30, 2020 | |
| Homebuilding debt / total capital | 23.1% at May 31, 2021, vs. 31.2% a year earlier |
Second-quarter deliveries rose 14% to 14,462 homes excluding unconsolidated entities; average delivered price increased 6% to $414,000. Net new orders rose to 17,157 from 13,015, and backlog increased to 24,741 homes worth $11.03 billion from 17,975 homes worth $7.09 billion. Six-month inventory growth of $1.58 billion was a principal offset to earnings in operating cash flow. The company used $818 million in financing activities, including $174 million of stock repurchases and $156 million of dividends. There were no borrowings on its $2.5 billion revolving credit facility at quarter-end.
Material changes and unusual items
- Revenue and earnings rose substantially, with homebuilding margins improving as pricing gains exceeded higher costs. SG&A as a share of home-sale revenue improved to 7.6% from 8.3% in Q2.
- Financial Services operating earnings were approximately $121 million, below the prior-year reported amount, which included a $61 million deconsolidation gain. Excluding that prior-year gain, management cited improved mortgage and title volume/margins.
- Lennar Other reported a $54 million Q2 operating loss, including mark-to-market losses of $234 million on Opendoor and $38 million on Sunnova, partly offset by a $151 million gain on the residential solar business sale to Sunnova. For the six months, Lennar Other recorded $352 million of realized and unrealized gains, making reported earnings sensitive to investment valuations.
- Homebuilding inventory increased to $18.42 billion from $16.93 billion at November 30, 2020. Homesites controlled through options or similar arrangements reached 50% of total, and owned-land supply was 3.3 years versus 3.9 years a year earlier.
Outlook, commentary, and risks
Management described housing demand as strong and supply as constrained, while noting that land, labor, and supply-chain limits impede construction. It expects strong second-half 2021 conditions and continued market strength into 2022. Full-year 2021 delivery guidance remained 62,000–64,000 homes; expected gross margin was raised to 26.5%–27.0%, with SG&A expected at 7.3%–7.5% of home-sale revenue. Management reported return on equity of 18.8% and return on capital of 15.0%.
The company is considering separating certain businesses from the homebuilder and is targeting a $5–$6 billion asset base for a new independent asset-management business; the filing does not specify a completion date. Management emphasized cash flow, debt reduction, buybacks, land-light operations, and return metrics. Key risks include COVID-19 uncertainty, construction-cost inflation and supply constraints, housing or multifamily market weakness, mortgage availability and interest rates, land acquisition and entitlement challenges, inventory impairment, joint-venture commitments, refinancing, and execution of strategic transactions. Management said ordinary-course litigation was not expected to have a material adverse effect and reported no material change in disclosed risk factors.
Investor verification priorities
- Track whether deliveries meet the 62,000–64,000 guidance and whether margin expectations withstand labor, material, and supply-chain pressures.
- Assess cash conversion: operating cash flow fell year over year while inventories rose materially.
- Separate core homebuilding performance from volatile Opendoor/Sunnova marks and the one-time solar-sale gain.
- Monitor backlog conversion, cancellations, new orders, average selling prices, and the growth and carrying value of inventory and land options.
- Verify progress, asset allocation, timing, and financial effects of the proposed business separation, alongside debt reduction and capital returns.