Homebuilding titan Lennar (NYSE:LEN) wrapped up its fiscal 2019 in a position to boast about a spate of healthy financial and operational metrics. The company's fourth-quarter report, released Wednesday, didn't provoke a significant reaction from shareholders, however, as Lennar stock closed up a modest 0.80% on the trading session.
Below, we'll walk through the outcomes of the last three months (all comparative numbers are presented against those of the prior-year quarter).
A bird's-eye view of the quarter
|Metric||Q4 2019||Q4 2018||Change (Decline)|
|Revenue||$6.97 billion||$6.46 billion||7.9%|
|Net income||$313.9 million||$325.8 million||(3.7%)|
|Diluted earnings per share||$2.13||$2.42||(12%)|
Essential details from the report
- Lennar's major revenue stream, homebuilding, rose by 7.8%. Home deliveries surged by 16% to 16,420.
- Demand remained vibrant as new home orders increased by 23% to roughly 13,100. The dollar volume of new home orders also increased by 23%, to $5.2 billion.
- Order backlog in units was flat at approximately 15,600 homes, but the dollar value of the company's unfilled order book dipped by 4% to $6.3 billion.
- Revenue in the financial services segment inched up by less than 1% to $252.8 million, but operating earnings leaped by 30% to $74.8 million on a higher capture rate of mortgages tied to the company's home deliveries.
- The multifamily segment increased revenue by 61% to $176 million. But due to the lack of sales of operating properties, operating earnings of $3.7 million represented just a fraction of the $33 million in earnings booked in the prior-year quarter. In that quarter, Lennar generated most of its profits from gains related to the sale of two unconsolidated properties.
- Gross margin on home sales advanced by 100 basis points to 20.6%, while operating margin on home sales improved by 40 basis points, to 13.9%.
- In the prior-year quarter, the company realized a gain of $0.58 per share on the sale of the Rialto investment and asset management platform, net of certain nonrecurring expenses. Adjusting for this item, current-period earnings per share (EPS) of $2.13 improved nearly 16% against Q4 2018 EPS of $1.84.
- Lennar ended the fiscal year with homebuilding debt of $7.8 billion, against $8.5 billion at the end of fiscal 2018.
In Lennar's earnings release, management stated that the quarter's double-digit increases in home deliveries and new orders exceeded its expectations. Management added that it continues to reduce the company's exposure to land in its effort to concentrate on home inventory: Lennar's supply of owned homesites decreased to an average of 4.1 years, against 4.4 years at the end of the previous sequential quarter.
Executive chairman Stuart Miller said: "As we head into 2020, we expect our fiscal 2020 deliveries to be in the range of 54,000-55,000 homes, homebuilding gross margin percentage to be in the range of 20.5%-21%, and our cash flows to continue to accelerate as we continue to refine our overall land program. With only $600 million of senior notes due in 2020, we will opportunistically deploy excess cash flow to repurchase additional debt and return capital to shareholders."
An attractive valuation
In my recap of last quarter's earnings, I noted that shares of Lennar are bordering on value territory; today, the LEN symbol looks even more attractive, as it now trades at only 9.5 times forward earnings. This represents a substantial discount versus the S&P 500 index's average mid-cap forward price-to-earnings ratio of 17.0. Investors' fears of a cyclical slowdown in the housing construction market have recently kept a lid on shares of Lennar and those of its peers. But with each passing quarter, Lennar's improving earnings are creating a relative bargain for long-term investors who can stomach a bit of volatility and risk.