Lennar(US:LEN)2024-03-29 21:08Part I: Financial Information Item 1. Financial Statements The company's total assets slightly decreased to $39.0 billion as of February 29, 2024, from $39.2 billion at November 30, 2023, while total revenues increased to $7.3 billion and net earnings rose to $719.3 million for the quarter ended February 29, 2024 Condensed Consolidated Balance Sheets As of February 29, 2024, Lennar's total assets were $38.95 billion, a slight decrease from $39.23 billion at November 30, 2023, with total liabilities decreasing and total equity increasing over the same period Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Feb 29, 2024 (in thousands) | Nov 30, 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $38,951,199 | $39,234,303 | | Homebuilding Inventories | $19,374,070 | $18,352,735 | | Cash and cash equivalents | $4,950,128 | $6,273,724 | | Total Liabilities | $12,173,269 | $12,532,337 | | Homebuilding Senior notes | $2,830,332 | $2,816,482 | | Total Equity | $26,777,930 | $26,701,966 | Condensed Consolidated Statements of Operations and Comprehensive Income For the three months ended February 29, 2024, Lennar reported total revenues of $7.31 billion, a 12.7% increase year-over-year, with net earnings attributable to Lennar growing by 20.6% to $719.3 million and diluted earnings per share increasing to $2.57 Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Feb 29, 2024 (in thousands) | Three Months Ended Feb 28, 2023 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Revenues | $7,312,930 | $6,490,429 | +12.7% | | Homebuilding Revenues | $6,930,991 | $6,156,305 | +12.6% | | Financial Services Revenues | $249,720 | $182,981 | +36.5% | | Net Earnings Attributable to Lennar | $719,334 | $596,534 | +20.6% | | Diluted Earnings Per Share | $2.57 | $2.06 | +24.8% | Condensed Consolidated Statements of Cash Flows For the three months ended February 29, 2024, net cash provided by operating activities was $367.9 million, a decrease from the prior-year period, with significant cash used in financing activities primarily for stock repurchases and dividends, ending the period with $5.26 billion in cash and restricted cash Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Feb 29, 2024 (in thousands) | Three Months Ended Feb 28, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $367,867 | $978,205 | | Net cash used in investing activities | ($147,915) | ($36,355) | | Net cash used in financing activities | ($1,529,422) | ($1,483,463) | | Net decrease in cash | ($1,309,470) | ($541,613) | | Cash at end of period | $5,261,468 | $4,274,157 | Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies and provide further breakdown of financial data, covering segment performance, investments, equity changes, debt, fair value measurements, and commitments Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights strong housing demand driven by supply shortages, despite affordability challenges, and focuses on a 'pure play manufacturing model' and 'land light' strategy to enhance efficiency and cash flow, projecting 80,000 home deliveries for FY2024 with over 23% gross margin and over $2 billion in stock repurchases - Management highlights a strong demand for housing limited by a chronic supply shortage and affordability constraints; the core operating strategy focuses on a manufacturing model to reduce costs and a land-light balance sheet to generate cash flow110 - The company is considering a strategic, taxable spin-off of its excess land to create a permanent capital vehicle for future land development and acquisition, enhancing its land-light strategy112 Fiscal 2024 Outlook | Metric | Q2 2024 Forecast | Full Year 2024 Forecast | | :--- | :--- | :--- | | Home Closings | 19,000 - 19,500 | 80,000 | | Gross Margin | ~22.5% | >23% | | Stock Repurchases | - | >$2 billion | Q1 2024 vs Q1 2023 Homebuilding Performance | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Home Deliveries | 16,798 | 13,659 | +23% | | New Orders | 18,176 | 14,194 | +28% | | Average Sales Price (Delivered) | $413,000 | $448,000 | -8% | | Gross Margin on Home Sales | 21.8% | 21.2% | +60 bps | | Cancellation Rate | 14% | 22% | -8 p.p. | Results of Operations In Q1 2024, home sales revenue rose 13% to $6.9 billion, driven by a 23% increase in home deliveries to 16,798, despite an 8% decrease in average sales price to $413,000, with gross margin on home sales improving and Financial Services operating earnings surging to $130.6 million Home Deliveries and Average Sales Price by Segment (Q1 2024 vs Q1 2023) | Segment | Deliveries (Homes) 2024 | Deliveries (Homes) 2023 | Avg. Sales Price 2024 | Avg. Sales Price 2023 | | :--- | :--- | :--- | :--- | :--- | | East | 4,724 | 3,855 | $413,000 | $444,000 | | Central | 3,560 | 2,740 | $392,000 | $438,000 | | Texas | 4,263 | 3,421 | $251,000 | $297,000 | | West | 4,238 | 3,642 | $595,000 | $602,000 | | Total | 16,798 | 13,659 | $413,000 | $448,000 | New Orders and Average Sales Price by Segment (Q1 2024 vs Q1 2023) | Segment | New Orders (Homes) 2024 | New Orders (Homes) 2023 | Avg. Sales Price 2024 | Avg. Sales Price 2023 | | :--- | :--- | :--- | :--- | :--- | | East | 4,526 | 3,841 | $419,000 | $436,000 | | Central | 4,274 | 2,741 | $402,000 | $419,000 | | Texas | 4,431 | 3,142 | $253,000 | $280,000 | | West | 4,927 | 4,465 | $608,000 | $607,000 | | Total | 18,176 | 14,194 | $426,000 | $452,000 | - Financial Services operating earnings increased significantly to $130.6 million in Q1 2024 from $78.2 million in Q1 2023, primarily due to higher profit per locked loan, increased capture rate (85% vs 78%), and higher volume118133 Financial Condition and Capital Resources As of February 29, 2024, Lennar maintained strong liquidity with $5.3 billion in cash and $7.6 billion in total available capacity, with no credit facility borrowings and a stable Homebuilding debt to total capital ratio of 9.6%, while repurchasing $595 million of common stock and increasing its repurchase authorization by $5 billion - The company maintains a strong liquidity position with $5.0 billion of homebuilding cash and no outstanding borrowings under its $2.6 billion revolving credit facility, providing approximately $7.6 billion of available capacity138 Homebuilding Debt to Total Capital Ratios | Ratio | Feb 29, 2024 | Nov 30, 2023 | Feb 28, 2023 | | :--- | :--- | :--- | :--- | | Homebuilding debt to total capital | 9.6% | 9.6% | 14.2% | | Net homebuilding debt to total capital (Non-GAAP) | (8.6)% | (15.0)% | (0.1)% | - In January 2024, the Board of Directors authorized an increase to the stock repurchase program by an additional $5 billion; during Q1 2024, the company repurchased $595 million of its common stock148141 - On February 7, 2024, the company paid a quarterly cash dividend of $0.50 per share, an increase from the $0.375 per share paid in 202314861 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from interest rate fluctuations affecting its debt, investments, and mortgage portfolio, with no material changes in these exposures since fiscal year-end 2023, holding $2.83 billion in fixed-rate Homebuilding debt and $1.43 billion in variable-rate Financial Services debt Debt Principal by Interest Rate Type (as of Feb 29, 2024, in millions) | Segment | Rate Type | Total Principal Amount (in millions) | | :--- | :--- | :--- | | Homebuilding | Fixed | $2,829.5 | | Financial Services | Fixed | $130.3 | | Financial Services | Variable | $1,434.0 | - There have been no material changes in market risk exposures associated with interest rate risk since November 30, 2023162 Item 4. Controls and Procedures As of February 29, 2024, the company's Co-CEOs and CFO concluded that its disclosure controls and procedures were effective, with no material changes identified in internal control over financial reporting during the quarter - Management, including the Co-CEOs and CFO, concluded that the company's disclosure controls and procedures were effective as of February 29, 2024165 - No changes were identified during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting165 Part II: Other Information Item 1. Legal Proceedings The company is party to various routine claims and lawsuits, primarily related to construction defects, with management not expecting a material adverse effect on its business or financial position - The company faces routine legal claims, most commonly involving construction defects, which are typical for the homebuilding industry167 - Management asserts that the resolution of current legal proceedings is not expected to have a material adverse effect on the company's financial position167 Item 1A. Risk Factors No material changes to risk factors were reported since the fiscal year-end 2023, apart from the ongoing impact of inflation and increased interest rates discussed in the MD&A section - No material changes in risk factors are reported, aside from the impacts of inflation and interest rates discussed elsewhere in the report168 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended February 29, 2024, the company repurchased 3,947,462 shares at an average price of approximately $150.58 per share, as part of a publicly announced program increased by an additional $5 billion authorization in January 2024 Share Repurchases (December 2023 - February 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Dec 2023 | 124,966 | $145.52 | 123,877 | | Jan 2024 | 2,074,719 | $147.74 | 1,902,014 | | Feb 2024 | 1,747,777 | $151.78 | 1,374,109 | - In January 2024, the Board of Directors authorized an increase to the stock repurchase program, allowing for the repurchase of up to an additional $5 billion in value of its common stock169 Item 5. Other Information On February 9, 2024, Executive Vice President Jeff J. McCall entered into a Rule 10b5-1 trading plan for the potential sale of up to 30,000 shares of common stock, with sales scheduled to begin on May 10, 2024 - Executive Vice President Jeff J. McCall established a Rule 10b5-1 trading plan to sell up to 30,000 shares of company stock, starting May 10, 2024170 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various award agreements, executive officer certifications, and iXBRL data files