Lennar(US:LEN)2024-10-02 20:31Part I Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for Lennar Corporation as of August 31, 2024, and for the three and nine-month periods then ended. It includes the balance sheets, statements of operations, statements of cash flows, and detailed notes explaining the basis of presentation, segment information, equity changes, debt, and other key accounting policies and financial details Condensed Consolidated Balance Sheets As of August 31, 2024, total assets increased slightly to $39.7 billion from $39.2 billion at November 30, 2023, driven by higher inventories. Total liabilities decreased to $12.2 billion from $12.5 billion, primarily due to a reduction in senior notes and other debt. Total stockholders' equity grew to $27.4 billion from $26.6 billion, reflecting retained earnings growth partially offset by treasury stock purchases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | August 31, 2024 | November 30, 2023 | | :--- | :--- | :--- | | Total Assets | $39,740,982 | $39,234,303 | | Cash and cash equivalents | $4,037,405 | $6,273,724 | | Total Inventories (owned) | $16,245,947 | $15,360,207 | | Total Liabilities | $12,183,274 | $12,532,337 | | Senior notes and other debt payable, net (Homebuilding) | $2,263,256 | $2,816,482 | | Total Stockholders' Equity | $27,412,520 | $26,580,664 | Condensed Consolidated Statements of Operations and Comprehensive Income For the third quarter ended August 31, 2024, total revenues increased to $9.4 billion from $8.7 billion year-over-year, driven by higher homebuilding revenues. Net earnings attributable to Lennar rose to $1.16 billion from $1.11 billion. Diluted EPS for the quarter was $4.26, up from $3.87 in the prior-year period. For the nine-month period, net earnings grew to $2.84 billion from $2.58 billion year-over-year, with diluted EPS increasing to $10.26 from $8.94 Key Performance Indicators (in thousands, except per share data) | Metric | Three Months Ended Aug 31, 2024 | Three Months Ended Aug 31, 2023 | Nine Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $9,416,042 | $8,729,603 | $25,494,564 | $23,265,183 | | Homebuilding Revenues | $9,045,692 | $8,318,615 | $24,357,742 | $22,144,937 | | Net Earnings Attributable to Lennar | $1,162,674 | $1,108,996 | $2,836,319 | $2,577,224 | | Diluted EPS | $4.26 | $3.87 | $10.26 | $8.94 | Condensed Consolidated Statements of Cash Flows For the nine months ended August 31, 2024, net cash provided by operating activities was $1.4 billion, a decrease from $2.6 billion in the prior-year period, mainly due to increased investment in inventories and deposits. Net cash used in investing activities was $177 million. Net cash used in financing activities increased to $3.5 billion from $3.2 billion, driven by higher stock repurchases ($1.7 billion) and debt repayments Cash Flow Summary for Nine Months Ended August 31 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,428,874 | $2,590,541 | | Net cash used in investing activities | ($176,824) | ($114,965) | | Net cash used in financing activities | ($3,511,844) | ($3,167,314) | | Net decrease in cash | ($2,259,794) | ($691,738) | | Cash at end of period | $4,311,144 | $4,124,032 | - Significant cash outflows in financing activities for the nine months ended August 31, 2024, included $1.73 billion in common stock repurchases and $554 million in redemption/repurchases of senior notes19 Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial data. Key areas include segment performance, investments in unconsolidated entities, stockholders' equity activities like share repurchases and dividends, debt structure, fair value measurements of financial instruments, variable interest entities, and commitments such as warranty reserves and leases Segment Earnings (Loss) Before Income Taxes (in thousands) | Segment | Three Months Ended Aug 31, 2024 | Three Months Ended Aug 31, 2023 | Nine Months Ended Aug 31, 2024 | Nine Months Ended Aug 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Homebuilding | $1,477,918 | $1,493,820 | $3,846,869 | $3,615,068 | | Financial Services | $144,400 | $148,995 | $422,708 | $340,331 | | Multifamily | $78,908 | ($8,733) | $42,795 | ($38,496) | | Lennar Other | $20,095 | ($26,218) | ($48,417) | ($84,374) | - The Multifamily segment recognized a net gain of $179.0 million on the sale of 27 rental operation projects from its LMV I fund during the third quarter of 2024 as the fund nears the end of its contractual life54 Stock Repurchases (Nine Months Ended Aug 31) | Class | Shares Repurchased (2024) | Total Purchase Price (2024) | Shares Repurchased (2023) | Total Purchase Price (2023) | | :--- | :--- | :--- | :--- | :--- | | Class A | 9,311,923 | $1,445,909,000 | 5,021,186 | $568,892,000 | | Class B | 1,243,303 | $182,641,000 | 1,978,814 | $193,970,000 | - In January 2024, the Board of Directors increased the stock repurchase authorization by an additional $5 billion. As of August 31, 2024, $3.9 billion remains available for repurchase63 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, strategic outlook, and financial condition. Key themes include strong housing demand despite affordability challenges, a focus on a 'land-light' strategy, and a planned spin-off of land assets into a new entity, Millrose Properties Inc. The analysis details the drivers of revenue and margin changes across all business segments, provides operational metrics for homebuilding, and reviews liquidity, capital resources, and debt management Outlook Management maintains a constructive outlook on the housing market, citing strong underlying demand and constrained supply. They anticipate that stabilizing interest rates will activate pent-up demand. The company is focused on its 'land-light' strategy, culminating in a planned spin-off of land assets into a new REIT called Millrose Properties Inc. This move is intended to create an asset-light operating model and a permanent source of land capital - The company plans to spin off a new REIT, Millrose Properties Inc., by contributing land and cash with an expected book value between $6.0 billion and $8.0 billion to accelerate its land-light strategy106 Company Guidance and Targets | Metric | Guidance/Target | | :--- | :--- | | Q4 2024 Closings | 22,500 to 23,000 homes | | Full Year 2024 Deliveries | 80,500 to 81,000 homes (>10% increase over 2023) | | Year-End 2024 Community Count | Exceed 1,400 | | Full Year 2024 Stock Repurchases | In excess of $2 billion | Results of Operations This section provides a detailed comparison of operating results for the three and nine-month periods ended August 31, 2024, versus the same periods in 2023. For Q3 2024, home sales revenue rose 9% to $9.0 billion, driven by a 16% increase in deliveries, though partially offset by a 6% decrease in average sales price. Gross margin on home sales declined to 22.5% from 24.4% due to pricing adjustments and higher land costs. The analysis also breaks down performance by segment, noting a significant one-time gain in the Multifamily segment and mark-to-market gains in the Lennar Other segment Homebuilding Deliveries and Average Sales Price (Q3) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | New Home Deliveries | 21,516 | 18,559 | +16% | | Average Sales Price | $422,000 | $448,000 | -6% | | Home Sales Revenue | $9.0B | $8.3B | +9% | - Gross margin on home sales decreased to 22.5% in Q3 2024 from 24.4% in Q3 2023, primarily due to lower revenue per square foot and higher land costs, partially offset by lower material costs115 Homebuilding New Orders (Q3) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | New Orders (Homes) | 20,587 | 19,666 | +5% | | New Orders (Dollar Value) | $8.56B | $8.64B | -1% | | Cancellation Rate | 14% | 13% | +1 ppt | - The backlog of homes at August 31, 2024, was 16,944 homes with a dollar value of $7.7 billion, down from 21,321 homes valued at $9.9 billion a year prior131 Financial Condition and Capital Resources As of August 31, 2024, the company maintained a strong liquidity position with $4.0 billion in homebuilding cash and no borrowings on its $2.2 billion credit facility. The homebuilding debt to total capital ratio improved to 7.6% from 9.6% at year-end 2023, reflecting debt paydowns and earnings growth. The company continues to execute its capital allocation strategy, including debt reduction, dividend payments, and significant share repurchases. The company is also advancing its land-light strategy by increasing its use of option contracts, with controlled homesites representing 81% of the total, up from 73% a year ago - The company had approximately $6.2 billion of available liquidity as of August 31, 2024, consisting of $4.0 billion in homebuilding cash and no outstanding borrowings under its $2.2 billion revolving credit facility143 Homebuilding Debt to Capital Ratios | Ratio | August 31, 2024 | November 30, 2023 | | :--- | :--- | :--- | | Homebuilding debt to total capital | 7.6% | 9.6% | | Net Homebuilding debt to total capital (Non-GAAP) | (6.9)% | (15.0)% | - The company is increasing its reliance on a land-light model, with controlled (optioned) homesites making up 81% of its total homesite portfolio as of August 31, 2024, compared to 73% in the prior year167170171 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations affecting its investments, debt, and loans. There have been no material changes in these risk exposures since November 30, 2023. As of August 31, 2024, borrowings under Financial Services' warehouse facilities totaled approximately $1.4 billion. The majority of homebuilding debt is fixed-rate - As of August 31, 2024, the company had no outstanding borrowings under its main Credit Facility. Borrowings under Financial Services' warehouse repurchase facilities totaled $1.3 billion (residential) and $83.9 million (commercial)173 Controls and Procedures Management, including the Co-CEOs and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of August 31, 2024. No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - The Co-CEOs and CFO concluded that the company's disclosure controls and procedures were effective as of August 31, 2024175 Part II Other Information Legal Proceedings The company is party to various claims and lawsuits arising in the ordinary course of business, primarily related to construction defects, contract issues, and real property transactions. Management does not believe the ultimate resolution of these matters will have a material adverse effect on the company's business or financial position - Lennar is involved in ordinary course legal proceedings, common in the homebuilding industry, and does not expect them to have a material adverse financial impact177 Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended November 30, 2023, other than the ongoing impact of inflation and increased interest rates, which are discussed in the MD&A section - No material changes to risk factors were reported, aside from the continued impact of inflation and interest rates178 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the third quarter of 2024. A total of 3,355,628 shares were repurchased at an average price of approximately $154.73 per share. These repurchases were made under the board-authorized program, which was increased by $5 billion in January 2024 Share Repurchases (Q3 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | June 2024 | 1,031,441 | $149.98 | | July 2024 | 1,213,476 | $147.35 | | August 2024 | 1,110,711 | $167.31 |