Lennar’s 1st-quarter loss narrows on fewer sales incentives and reduced costs

Lennar posts smaller fiscal 1st-quarter loss

Lennar Corp., one of the nation’s largest homebuilders, said Wednesday its fiscal first-quarter loss narrowed as the company offered fewer sales incentives and trimmed costs.

Management said the housing market is stabilizing, as the builder saw improved traffic, an 18 percent surge in new home orders and fewer buyers canceling contracts. And the company said it’s on track to post a profit for fiscal 2010.

Chief Executive Stuart Miller said the looming expiration of two homebuyer tax credits and other efforts by the government to stimulate home sales shouldn’t spell disaster, even though the economic recovery remains fragile.

“These government programs worked very well as a kick-start to a free-falling housing market, but it now seems that the free market is positioned to take over in orderly fashion,” Miller said.

Most experts anticipate home sales will weaken after April 30, when the tax credits — $8,000 for new buyers and $6,500 for those who have previously owned a home — sunset. Sales also could take a hit if mortgage rates start to rise once the Federal Reserve stops buying mortgage-backed securities at the end of this month.

Lennar’s results for the December-February quarter bucked national new home sale trends in the same period.

The Commerce Department reported Wednesday that new home sales fell 2.2 percent in February, in part because harsh winter weather kept buyers buried. It was the fourth consecutive month of declines and the worst showing on records dating to 1963.

The disappointing housing data didn’t dampen Wall Street’s reaction to Lennar’s results. Shares added 92 cents, or about 5 percent, to $17.98 in afternoon trading.

The Miami-based company reported a loss of $6.5 million, or 4 cents per share, for the period ended Feb. 28. That’s smaller than its loss of $155.9 million, or 98 cents per share, a year ago.

Analysts surveyed by Thomson Reuters, whose estimates typically remove one-time items, predicted a much bigger loss of 30 cents per share.

Revenue slipped 3 percent to $574.4 million, but topped Wall Street’s forecast of $568.2 million.

Lennar was able to improve its quarterly gross margin by lowering construction costs and trimming sales incentives to 12.5 percent of home sales revenue, down from 17.1 percent in the year-earlier quarter.

Many homebuilders implemented a flurry of sales incentives during the recession in order to tempt potential buyers into making purchases. Consumers have been hesitant to buy homes due to concerns about high unemployment levels and unstable economic conditions, coupled with tightening credit.

Still, Lennar’s new home orders outpaced the prior-year period’s total by 18 percent to 2,577. And the number of buyers canceling contracts fell to 13 percent from 21 percent a year ago.

Completed home sales, excluding unconsolidated entities, fell 7 percent from a year ago to 1,988 homes. And the average sales price rose 6 percent to $258,000. That came about mostly due to an increase in completed sales in the West, particularly in California.

At the end of February, Lennar had a backlog of 2,204 homes under construction, representing roughly $582 million in projected revenue.

Looking ahead, the builder said it anticipates a spate of recent investments in distressed assets will begin contributing to revenue in its fiscal second quarter.

Last month, a Lennar subsidiary acquired a 40 percent stake in a $3.05 billion portfolio of distressed real estate loans held by the Federal Deposit Insurance Corp. Lennar will get a share of payments made on the loans.

On the Net:

Lennar Corp: www.lennar.com