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    LENNAR CORP /NEW/ (LEN)

    Q3 2024 Earnings Summary

    Reported on Jan 10, 2025
    Pre-Earnings Price$192.45Last close (Sep 19, 2024)
    Post-Earnings Price$182.19Last close (Sep 20, 2024)
    Price Change
    $-10.26(-5.33%)
    • Lennar's strategic shift to an asset-light model, including the planned spin-off of land assets into Millrose, is expected to enhance returns on capital and equity, improving financial performance.
    • The company is targeting a 10% steady-state volume growth rate, leveraging their asset-light model and land strategy to capitalize on housing supply constraints and meet strong demand, positioning Lennar for future growth.
    • Lennar is improving inventory turns, leading to accelerated cash flow and operational efficiency, which could result in increased returns to shareholders, including potential cash deployment back to shareholders.
    • Uncertainty regarding the Millrose spin-off: Lennar is limited in discussing details about the Millrose REIT spin-off, including the exact amount of land and cash involved (estimated between $6 billion and $8 billion), which creates uncertainty about its impact on the company's financials and strategy. ,
    • Excess cash holdings and capital allocation concerns: The company acknowledges holding more cash than needed ($4 billion at quarter-end) as "safety stock" for the spin-off, raising questions about efficient capital allocation and potential missed opportunities for investment or returning capital to shareholders.
    • Aggressive growth targets amidst industry moderation: While other industry players are moderating their long-term growth targets to a 5-10% range, Lennar aims for a steady-state 10% volume growth. This ambitious target may be challenging in a potentially slowing market and could lead to oversupply or margin pressures.
    1. Margin Outlook
      Q: Why has gross margin guidance decreased?
      A: Interest rates remained high longer than expected , affecting affordability and consumer confidence. To maintain volume, we increased absorption rates, impacting margins. We use margin as a shock absorber while focusing on long-term growth.

    2. Millrose REIT Impact
      Q: How will Millrose REIT affect margins?
      A: Millrose mirrors our other structures but with permanent capital. We expect the margin impact to be relatively small as option costs are similar.

    3. Operating Margins Comparison
      Q: Why are operating margins below peers?
      A: We're investing in operational efficiencies as we migrate to an asset-light model. We believe margins will grow over time as we settle into this approach.

    4. Volume Growth Strategy
      Q: What's the long-term volume growth target?
      A: We're aiming for a 10% steady-state growth rate , facilitated by our asset-light model. We see supply constraints and aim to meet the pent-up demand.

    5. Cash Holdings and Millrose
      Q: Why hold $4 billion in cash?
      A: We're holding extra cash as a safety stock while configuring Millrose. It's needed for strategic considerations, including what cash component goes into Millrose.

    6. Details on Millrose Spin
      Q: What's the composition of assets in Millrose?
      A: We're contributing $6–8 billion of land and cash to Millrose. The exact numbers are moving targets. Lennar will not hold Millrose stock; it's a stock dividend to shareholders.

    7. SG&A Reduction Strategies
      Q: How are you reducing SG&A costs?
      A: We've been reducing realtor costs through digital marketing. By lowering unnecessary expenses, we improve affordability without reducing traffic.

    8. Impact of Reducing Broker Costs
      Q: Does lower broker use require more incentives?
      A: We haven't seen reduced traffic. Savings from realtor costs help us offer lower prices and maintain margins. It's a balance we focus on daily.

    9. Inventory Turn and Cash Flow
      Q: What's the upside to inventory turns?
      A: Improving inventory turn accelerates cash flow and efficiency. As we implement the asset-light approach across divisions, turns will trend higher.

    10. Down-Payment Assistance Impact
      Q: Thoughts on down-payment assistance proposals?
      A: Down payments are a key hurdle due to inflation. We must balance increased demand with supply to avoid inflationary pressures. Discussions are promising for a healthier housing market.

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