Lennar Corp., Miami (NYSE:LEN) on Tuesday morning reported earnings of $130.8 million, or $0.56 per share, for the fiscal first quarter ended Feb. 28, including a net loss related to WCI Communities of $0.03 per diluted share, primarily due to one-time transaction expenses related it its acquisition by Lennar in early February. Analysts polled by The Wall Street Journal were expecting a gain of $0.55 per share. The profit compared to first quarter net earnings of $144.1 million, or $0.63 per diluted share, which included a favorable $0.05 per diluted share impact due to a lower tax rate.
Total revenue for the quarter rose 17% to $2.3 billion. Home sales revenue increased 13% to $2.0 billion from $1.8 billion in the first quarter of 2016, primarily due to a 13% increase in the number of home deliveries to 5,433 homes from 4,806 homes in the first quarter of 2016. The average sales price of homes delivered was $365,000 in the first quarter of 2017, consistent with the first quarter of 2016. Sales incentives offered to home buyers were $22,700 per home delivered, or 5.9% as a percentage of home sales revenue, compared to $21,600 per home delivered in the first quarter of 2016, or 5.6% as a percentage of home sales revenue, and $23,700 per home delivered in the fourth quarter of 2016, or 6.2% as a percentage of home sales revenue.
New orders rose 12% to 6,483 homes from 5,794 in last year’s quarter. New order dollar value increased 16% to $2.4 billion. At quarter’s end, homes in backlog totaled 9,017 homes, up 18% from a year earlier, with a backlog dollar value of $3.5 billion, up 24%.
Gross margins on home sales were $419.2 million, or 21.1%, in the first quarter of 2017, compared to $398.9 million, or 22.7%, in the first quarter of 2016. Gross margin percentage on home sales decreased compared to the first quarter of 2016 primarily due to an increase in land and construction costs per home.
Selling, general and administrative expenses were $204.0 million in the first quarter of 2017, which included approximately $10 million of one-time transaction expenses related to the WCI acquisition, mainly offset by other one-time legal and insurance benefits. In the first quarter of 2016, selling, general and administrative expenses were $189.8 million. As a percentage of revenues from home sales, selling, general and administrative expenses improved to 10.3% in the first quarter of 2017, from 10.8% in the first quarter of 2016, due to improved operating leverage as a result of an increase in home deliveries and benefits from the company’s investments in technology.
Gross profits on land sales were $2.0 million in the first quarter of 2017, compared to $9.2 million in the first quarter of 2016. Lennar Financial Services reported operating earnings of $20.7 million, compared to $14.9 million. Rialto posted operating earnings (net of noncontrolling interests) of $12.0 million, compared to $1.9 million. Lennar Multifamily had operating earnings of $19.2 million, compared to $12.2 million.
The company ended the quarter with home-building cash and cash equivalents of $641 million and a debt to total capital ratio, net of cash and cash equivalents, of 41.6%. Lennar also issued $600 million of 4.125% senior notes due 2022 during the quarter. Lennar acquired WCI on February 10, 2017 for approximately $643 million in cash.
“These solid results were supported by an improving macroeconomic environment following last year’s election. Since November we have seen a combination of renewed optimism, wage and job growth, and consumer confidence,” said Stuart Miller, Lennar CEO. “As a result, our home-building operations have gone from slow and steady to a faster than expected sales pace throughout our first quarter. In this environment of accelerating sales pace, together with limited land and labor, and tight inventory particularly at the lower price points, we believe we are positioned for increased pricing power and solid earnings going forward.”
