LEN and KBH top estimates but new home orders drop sharply, especially for KBH -
Barron's -
Lennar and KB Home beat quarterly earnings estimates -- but the housing
market's broader slowdown cut into orders at both home builders.
Each saw earnings rise above last year's levels as they profited from
higher prices as the housing market boomed.
Lennar, the nation's second-largest home builder by market
capitalization, reported third-quarter net earnings per diluted share of
$5.03 on revenue of $8.9 billion -- an increase of 11% and 19%,
respectively, from the year prior. Consensus estimates by FactSet had
anticipated earnings per diluted share of $4.81 on revenue of about $8.9
billion.
In a statement, Lennar Executive Chairman Stuart Miller highlighted the
company's increase in home deliveries to 17,248, up 13% from the same
quarter last year. The home builder's net margin was 23.5%, he said, "even
as materials and labor costs increased."
KB Home, a smaller builder based in Los Angeles, reported earnings per
diluted share of $2.86 in the third quarter, a 79% increase compared to the
same quarter last year and beating estimates of $2.67 per share. It
reported total revenue of $1.84 billion -- an increase of 26% from the same
quarter last year, according to the company's earnings release, but slightly
below FactSet revenue estimates of $1.88 billion.
" KB Home achieved record third quarter financial results, with
substantial year-over-year growth in revenues, margins and diluted earnings
per share," KB Home CEO Jeffrey Mezger said in a statement.
Lennar (ticker: LEN) and KB Home (KBH) shares closed lower on Wednesday,
falling about 1.3% and 2.6%, respectively. In after-hours trading, Lennar
was trading 0.7% higher, while KB Home was down 1.2%. Lennar stock is down
34.6% so far this year, while KB Home has declined 37.4%.
The companies' earnings reports for the quarter ended Aug. 31 come as the
housing market slows compared with prior in the pandemic. Existing-home
sales in August fell for the seventh month in a row, the National
Association of Realtors said Wednesday, and some industry economists have
said that recent conditions constitute a housing recession.
Both companies have seen the impact from the cooling housing market.
Lennar said its new orders fell 12% to 14,366 homes in the third quarter,
while KB Home's net orders fell 50% to 2,040.
In a statement, Lennar's Miller said the company is maintaining its pace
of housing starts while adjusting prices and incentives to attract buyers.
"Sales have clearly been impacted by rising interest rates, but there
remains a significant national shortage of housing, especially workforce
housing, and demand remains strong as we navigate the rebalance between
price and interest rates," Miller said.
KB Home's Mezger said that the company's built-to-order business model,
in which prospective buyers can customize their homes at various price
points, will help the company navigate the housing market's shift amid
higher mortgage rates and inflationary pressures.
The companies also issued guidance for the fourth quarter. KB Home said
it expects housing revenue in a range from $1.95 billion to $2.05 billion in
the fourth quarter, and an average selling price of $503,000.
Lennar said it anticipates new orders in the fourth quarter in a range
from 14,000 to 15,500, deliveries in a range from 20,000 and 21,000, and an
average sale price of $475,000 to $480,000.
Investors likely had more on their minds today than just home builder
earnings. Mortgage rates have increased in September following August's
hotter-than-expected inflation report as markets awaited the Federal
Reserve's decision today to raise interest rates by 0.75 percentage point.
The average contract rate on a 30-year fixed mortgage last week was 6.25%,
the Mortgage Bankers Association said earlier today -- the highest such rate
since 2008.
Mortgage rates in 2022 have doubled, cutting into sale of
previously-owned homes. Existing-home sales in August fell for the seventh
month in a row, the National Association of Realtors said Wednesday.
Lawrence Yun, the trade group's chief economist, said earlier today that
existing-home sales could stabilize if mortgage rates do. "But all bets are
off if the mortgage rate continues to trend higher," he added.
