Lennar to report Q2 earnings. Will results benefit from demand recovery?

After giving mixed signals in the first half, demand for new homes in the US is expected to recover in the later part of the year. While there is pent-up demand from prospective customers who postponed their purchases due to high mortgage rates, short-supply of new housing units and elevated prices might weigh on sales. The market will be closely following the upcoming earnings of homebuilder Lennar Corporation (NYSE: LEN), which a few months ago reported positive results for the first quarter of fiscal 2024.

After recovering from its post-earning drop in mid-March, Lennar’s stock regained strength in the following weeks and reached an all-time high by month-end. Thereafter, the stock’s performance has been mixed, and it experienced weakness ahead of the earnings. LEN looks reasonably valued, but the lingering uncertainties in the housing market call for caution as far as investing is concerned.

Q2 Data on Tap

The company’s second-quarter report is slated for release on Monday, June 17, at 4:30 pm ET. On average, analysts following Lennar see an 8% increase in second-quarter earnings to $3.24 per share from $3.01 per share in the comparable period of FY23. It is estimated that Q2 revenues increased about 5.9% year-over-year to $8.52 billion.  

The continued uptick in demand, outpacing supply, and healthy market fundamentals point to a near-term rebound in housing activity. A potential dip in mortgage rates in the second half, combined with easing economic headwinds and improving labor market conditions, will likely add to the momentum.

Outlook

Buoyed by the general uptrend in the housing market, Lennar’s management estimates that home deliveries increased to 19,000-19,500 in the most recent quarter from 17,074 a year earlier. They also see new orders in the 20,900-21,300 range. Being a market leader, the company’s long-term growth prospects are encouraging and it looks well-positioned to boost revenue growth by filling the demand-supply gap.   

From Lennar’s Q1 2024 earnings conference call:

“While we know we have accumulated a sizable $5 billion of cash on our book, we are crafting our strategy for appropriate capital allocation. Overall, the macroeconomic environment remains relatively strong for the new homebuilders. The general theme remains primarily focused around very strong demand for housing, limited by the chronic housing shortage that is particularly problematic for working-class families and their ability to find affordable or attainable supply. Demand for that product remains robust if it can be built at an attainable price point.”

Mixed Q1

The company reported mixed results for the February quarter, compared to Wall Street’s expectations — sales missed estimates while earnings beat, continuing the long-term trend. The Homebuilding division, which represents about 95% of total sales, grew 13% in the first quarter, driving up total revenues to $7.3 billion. The fast-growing Financial Services segment expanded by an impressive 37%. Net income grew 21% annually to $719 million during the three months, representing a 25% increase in earnings per share to $2.57.

The company’s shares have gained about 4% so far this year, after going through a series of ups and downs. LEN traded slightly higher in the early hours of Monday’s session.