LENNAR CORP /NEW/ (LEN) Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 missed Lennar’s internal guidance as higher mortgage rates and affordability pressure led to lower new orders (16,895 vs. 19,000–19,300 guided), softer homebuilding gross margin (22.1% vs. “flat with Q3” ~22.5% guided), and slightly fewer deliveries (22,206 vs. 22,500–23,000 guided), while Financial Services outperformed prior guidance ($154M vs. $140M) .
• Total revenue was $9.95B and EPS $4.06 vs. $10.97B and $4.82 in Q4 2023, reflecting lower ASP and volumes; SG&A rose to 7.2% (less operating leverage), and gross margin on home sales fell to 22.1% amid higher incentives and land costs .
• 1Q25 guidance embeds further margin pressure (gross margin 19.0–19.25%, SG&A 8.7–8.8%) with 17,000–17,500 deliveries and $410–$415K ASP; full‑year 2025 deliveries guided to 86,000–88,000, including Rausch Coleman, signaling continued volume focus despite near‑term profitability headwinds .
• Strategic catalysts: (1) Millrose spin (S‑11 filed) to advance land‑light/asset‑light model ; (2) Rausch Coleman acquisition expanding into new markets and adding ~4,000 deliveries/orders in 2025, assuming Q1 close .

What Went Well and What Went Wrong

• What Went Well

  • Financial Services beat guidance: Q4 operating earnings $154M vs. $140M guided, aided by title volume offsetting mortgage margin pressure .
  • Execution on land‑light strategy: years of owned lots improved to 1.1 and controlled lots rose to 82%, driving 29.2% return on inventory and 1.6x inventory turns .
  • Balance sheet strength and capital returns: $4.7B homebuilding cash, no revolver borrowings, 7.5% homebuilding debt/total capital; $521M buybacks (3M shares) in Q4 .
  • Management quote: “We adjusted sales price, incentives, and margin in order to re‑ignite sales and actively manage inventory levels…ended the quarter with two completed, unsold homes per community” .

• What Went Wrong

  • Demand/Margins under rate shock: New orders fell short (16,895 vs. 19,000 low end guided) with gross margin down to 22.1% as incentives rose; SG&A delevered to 7.2% .
  • ASP and volume pressure: Deliveries declined 7% YoY to 22,206; ASP down to $430K (from $441K), reflecting pricing to market and mix .
  • Near‑term outlook trimmed: Q1 2025 gross margin guided to 19.0–19.25% with ~50% of closings expected to be sold in‑quarter (lower margin), and SG&A 8.7–8.8% (higher to sustain pace) .
  • Analyst concern echoed: Management acknowledged affordability and confidence headwinds and willingness to use margin as the “shock absorber” to maintain volume .

Financial Results

• Segment Revenues and Operating Earnings

• KPIs and Operating Metrics

• Regional Deliveries – Q4 2024 vs. Q4 2023

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our fourth quarter results missed expectations as new orders were 16,895 short of the 19,000 we expected, and our gross margin was 22.1%, short of the 22.5% that we expected.”
• “We adjusted sales price, incentives, and margin…to re‑ignite sales and actively manage inventory levels…ended the quarter with two completed, unsold homes per community.”
• “We expect…Q1 2025…deliver between 17,000 and 17,500 homes…gross margin…19.0% to 19.25%…we will not guide to full year gross margin” .
• “We continue to migrate our operating platform to an asset‑light configuration…Millrose…first publicly listed land banking REIT…option payments supporting predictable dividends” .
• “Acquisition [Rausch Coleman]…add ~100 communities, 4,000 deliveries and 4,000 new orders in 2025…#1 builder by share in 6 markets” .

Q&A Highlights

• Gross margin bridge and cadence: About 50% of Q1 closings expected to be sold in‑quarter, diluting backlog ~20% GM to ~19–19.25% in Q1; Q1 is typically margin low point; field cost seasonality impacts Q1 .
• Volume vs. margin trade‑off: Management will prioritize steady volume and use incentives/pricing to rationalize costs; normalized margin expected higher over time as costs and mix improve .
• Rausch integration and growth: 2025 deliveries guided to 86–88K including ~4K from Rausch; purchase accounting impact not material to margin; expands into AR/KS/MO etc. .
• Inventory discipline: Intend to carry ~2 unsold homes per community (vs. historical 1–2) but prevent buildup; 80% of inventory ≤90 days “fresh” .
• Cost outlook: Ongoing discussions with trades/suppliers to find efficiencies as LEN provides consistent volume; expect continued cost concessions .

Estimates Context

• Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable during this session; as a result, we benchmarked results vs. Lennar’s prior guidance and prior periods. S&P Global consensus data could not be retrieved due to an access limit at query time.
• Management guided Q1 2025 EPS to ~$1.60–$1.80 based on provided building blocks (deliveries, margin, SG&A, financial services, tax rate and share count) .
• Implication: Street models likely need lower near‑term gross margin assumptions (Q1 guide ~19%) and higher SG&A to maintain pace, while raising deliveries for FY25 to 86–88K (incl. Rausch) .

Key Takeaways for Investors

• Near‑term profitability reset: Q1 2025 gross margin guide (19.0–19.25%) and higher SG&A reflect continued affordability headwinds and in‑quarter selling mix; expect margin recovery later as rates stabilize and cost initiatives accrue .
• Volume durability: Despite Q4 shortfalls vs. internal targets, LEN aims for 86–88K FY25 deliveries (incl. Rausch), consistent with its volume‑first playbook to drive cash flow and structural cost improvement .
• Structural catalyst: Millrose spin (S‑11 filed) should accelerate the land‑light transition with predictable off‑balance‑sheet homesite supply and potential capital return mechanisms (including a possible cashless buyback via exchange of remaining 20%) .
• Solid balance sheet support: $4.7B cash, $0 drawn on $2.9B revolver, 7.5% homebuilding debt/total capital provide flexibility for buybacks, M&A (Rausch) and spin execution through macro volatility .
• Execution focus: Core product standardization, cycle time reduction (138 days), and supplier partnerships underpin medium‑term margin resiliency as incentives normalize .
• Watch list: Mortgage rate trajectory, incentive intensity, pace vs. price balance, and timing of Millrose/Rausch close are likely stock drivers around prints and milestones .
• No Street consensus provided here; anchor on company guidance and prior‑period comparisons until S&P Global estimates are accessible (Q4 revenue $9.95B, EPS $4.06; Q1 guide implies step‑down before potential re‑acceleration) .

Additional Relevant Q4 2024 Press Releases

• Millrose spin S‑11 filing announced (Dec 18, 2024) .
• Rausch Coleman Homes acquisition agreement (Nov 19, 2024) .

Notes: All figures are GAAP unless noted. Non‑GAAP references include EPS excluding mark‑to‑market effects (Q4 2024 $4.03) and EBIT as presented by the company .