Q4 2024 Earnings Summary
- Lennar projects substantial home delivery growth of 8% to 10% in 2025, targeting 86,000 to 88,000 home deliveries, reflecting strong confidence in future demand.
- The company has increased its community count by 13% from last quarter and 15% from the prior year, positioning it for future sales growth with lower absorption rates, which should reduce margin pressure over time.
- Lennar is focusing on operational efficiencies, including reducing cycle times and rationalizing costs, which is expected to improve margins as demand stabilizes, leading to higher profitability multiplied by larger volume.
- Gross margins are expected to decline in Q1 2025 to between 19% to 19.25%, down from previous quarters, due to increased incentives and pricing adjustments needed to drive sales in a challenging market.
- Management expressed uncertainty about future margins and market conditions, stating that it is hard to predict normalized margins amidst "turbulent times" and that margins will "move up and down" with the market.
- Expected volume growth in 2025 includes contributions from acquisitions like Rausch Coleman, and the line between organic and inorganic growth is "blurry," indicating that organic growth may be lower than anticipated due to market challenges.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
New Orders | Q4 2024 | 19,000–19,300 | no current guidance | no current guidance |
Community Count YoY Growth | Q4 2024 | 10%–12% | no current guidance | no current guidance |
Deliveries | Q4 2024 | 22,500–23,000 | no current guidance | no current guidance |
Average Sales Price | Q4 2024 | $425,000 | no current guidance | no current guidance |
Gross Margins | Q4 2024 | Flat with Q3 | no current guidance | no current guidance |
SG&A | Q4 2024 | 6.7%–6.8% | no current guidance | no current guidance |
Homebuilding JV / Land / Other | Q4 2024 | $25M | no current guidance | no current guidance |
Financial Services | Q4 2024 | $140M | no current guidance | no current guidance |
Multifamily | Q4 2024 | Breakeven | no current guidance | no current guidance |
Lennar Other | Q4 2024 | ($5M) loss | no current guidance | no current guidance |
Corporate G&A | Q4 2024 | 1.7% of revenues | no current guidance | no current guidance |
Charitable Foundation Contribution | Q4 2024 | $1,000 per home | no current guidance | no current guidance |
Tax Rate | Q4 2024 | 24.25% | no current guidance | no current guidance |
Weighted Average Share Count | Q4 2024 | 267M shares | no current guidance | no current guidance |
EPS | Q4 2024 | $4.10–$4.25 | no current guidance | no current guidance |
New Orders | Q1 2025 | no prior guidance | 17,500–18,000 | no prior guidance |
Deliveries | Q1 2025 | no prior guidance | 17,000–17,500 | no prior guidance |
Average Sales Price | Q1 2025 | no prior guidance | $410,000–$415,000 | no prior guidance |
Gross Margins | Q1 2025 | no prior guidance | 19%–19.25% | no prior guidance |
SG&A | Q1 2025 | no prior guidance | 8.7%–8.8% | no prior guidance |
Financial Services | Q1 2025 | no prior guidance | $100M–$110M | no prior guidance |
Multifamily | Q1 2025 | no prior guidance | ($10M) loss | no prior guidance |
Lennar Other | Q1 2025 | no prior guidance | ($20M) loss | no prior guidance |
Corporate G&A | Q1 2025 | no prior guidance | 2.6% of revenues | no prior guidance |
Charitable Foundation Contribution | Q1 2025 | no prior guidance | $1,000 per home | no prior guidance |
Tax Rate | Q1 2025 | no prior guidance | 24.5% | no prior guidance |
Weighted Average Share Count | Q1 2025 | no prior guidance | 266M shares | no prior guidance |
EPS | Q1 2025 | no prior guidance | $1.60–$1.80 | no prior guidance |
Deliveries | FY 2024 | 80,500–81,000 | no current guidance | no current guidance |
Share Repurchases | FY 2024 | $2B in FY 2024 | no current guidance | no current guidance |
Deliveries | FY 2025 | no prior guidance | 86,000–88,000 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Recurring emphasis on margin pressures and evolving margin guidance linked to interest rates | Q3 2024: Margins at 22.5%, used as “shock absorber” to maintain volume. Q2 2024: Interest rate swings required flexible incentives; aimed for 23% margin. Q1 2024: Guided 23.3% margin for full-year, reliant on stable rates. | Q4 2024: Margin at 22.1% (below 22.5% target) due to incentives; guides 19–19.25% in Q1 2025 with interest rates near 7%. | Continued margin pressure, with more emphasis on deeper incentives in Q4 2024. |
Increasing reliance on sales incentives to sustain volume amid affordability challenges | Q3 2024: 10% incentives as a shock absorber for sales pace. Q2 2024: Incentives tied to rising rates, peaking near 7.3%. Q1 2024: Incentives used to unlock affordability; higher interest rates persist. | Q4 2024: Incentives rose to 10.8%, focused on rate buydowns and closing cost help. | Sustained high incentives, critical for maintaining affordability and volume. |
Continuation of land-light or asset-light strategies to enhance flexibility and returns | Q3 2024: Reduced years-owned supply to 1.1, advanced Millrose spin-off. Q2 2024: Prepared $6–8B land spin-off; 90% finished lots. Q1 2024: Focused on just-in-time land, strong liquidity. | Q4 2024: Millrose spin-off to reduce owned land; 82% homesites controlled, improved inventory turn. | Model refined with spin-off finalization for greater capital efficiency. |
Spin-off considerations (e.g., Millrose, $4B land assets) | Q3 2024: Land spin-off valued at $6–8B, with separate REIT structure. Q2 2024: Discussed $6–8B spin-off. Q1 2024: Proposed $4B spin-off strategy. | Q4 2024: Detailed updates on Millrose unit: $5.2B in land, $1B in cash, forming permanent capital REIT. | Topic expanded with more clarity on structure and size, no sign of discontinuing. |
Growing dependence on acquisitions for delivery growth, raising questions about organic expansion | Q3 2024: None. Q2 2024: None. Q1 2024: None. | Q4 2024: Highlighted Rausch Coleman acquisition as integrated for growth, viewing M&A as an operational extension. | Newer topic in Q4 2024, indicating a mix of organic and inorganic expansion. |
Consistent confidence in housing demand, though tempered by broader market uncertainties | Q3 2024: Demand remains, offset by affordability and inflation worries. Q2 2024: Robust fundamentals, though rate volatility tempers consumer confidence. Q1 2024: Emphasized shortage-driven demand, challenged by high rates. | Q4 2024: Strong demand but constrained by rates near 7%; sees ongoing supply shortage. | Confidence stays high, but higher rates keep caution in near-term outlook. |
Ongoing pursuit of operational efficiencies, cost reductions, and cycle-time improvements | Q3 2024: Construction costs down 6%, cycle at 140 days. Q2 2024: Manufacturing model, just-in-time lots. Q1 2024: 11% cost drop, cycle at 154 days. | Q4 2024: Core product approach yields 2% cost savings, cycle times at 138 days. | Steady gains through standardized designs and “even-flow” production. |
Focus on aligning net income and free cash flow for improved capital allocation | Q3 2024: Aligning net earnings with FCF to reduce debt, return capital. Q2 2024: Net income $950M, capital uses $1.1B. Q1 2024: Migrating to systematic buybacks, less debt focus. | Q4 2024: Aims to synchronize net income and FCF, shift more cash to buybacks/dividends. | Increased emphasis on consistent FCF alignment for shareholder returns. |
Expansion of community count as a newer lever for long-term sales growth | Q3 2024: 1,283 communities, planning 10–12% growth. Q2 2024: Not mentioned. Q1 2024: Not mentioned. | Q4 2024: Reached 1,447 communities (+13% QoQ), targeting 86–88K deliveries for 2025. | Accelerating community count expansion to boost sales volume. |
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Margin Outlook
Q: How should we think about normalized margins ahead?
A: Stuart Miller explained that while it's hard to predict in turbulent times, normalized margins are expected to be higher than current levels as the market adjusts and demand is activated by market forces. Lennar will price to market conditions, and margins will move accordingly. -
Volume Growth Strategy
Q: How should we consider your volume growth targets?
A: Lennar is targeting 8–10% volume growth in 2025, including contributions from the Rausch Coleman acquisition. Growth will come from both order growth and improved efficiency in converting backlog, with the line between organic and inorganic growth becoming blurred due to acquisitions and additions of communities. -
Rausch Coleman Acquisition
Q: How does the Rausch Coleman deal affect growth and margins?
A: The acquisition contributes about 5% to growth, expanding Lennar into new markets and increasing market share in existing ones. It's viewed as akin to organic growth, adding profitability at high returns without materially impacting margins. -
First-Quarter Gross Margins
Q: What are your expectations for first-quarter gross margins?
A: First-quarter gross margins are expected to be around 19%, with backlog margins closer to 20%, impacted by increased incentives from Q4. Market conditions may provide upside, but they are being conservative due to limited visibility. -
Millrose Spin-off Impact
Q: How will the Millrose spin-off affect shareholder returns?
A: The spin-off aims to generate sustainable, recurring cash flows. As Millrose matures, Lennar intends to align net income more closely with cash flow, increasing shareholder returns through dividends and stock buybacks, and leveraging a fully land-light strategy. -
Cost Efficiencies with Suppliers
Q: Are you expecting cost concessions from suppliers and trades?
A: Lennar expects to continue finding efficiencies and reducing costs through ongoing discussions with supply chain partners, enabled by consistent, predictable volume and a focus on simplification and SKU reduction. -
Standardizing Offerings
Q: How is standardizing product offerings impacting margins?
A: Lennar is expanding standardized core product offerings from 10% of starts in 2024 to one-third in 2025, expected to enhance efficiencies, reduce costs, and positively impact margins and cash generation. -
Inventory Management
Q: Are you comfortable with your current inventory levels?
A: Inventory is at the high end of their range but within acceptable limits. Lennar focuses on maintaining appropriate inventory levels to prevent buildup that could pressure pricing and margins, aiming for about 2 homes per community and ensuring inventory freshness. -
Cycle Time and Policy Impacts
Q: Are you assuming any cycle time impacts due to policy changes?
A: While acknowledging immigration policy as a wildcard, Lennar focuses on improving efficiency and cycle times by working closely with trade partners to mitigate potential impacts, considering variability due to the uncertain political environment. -
Consumer Demand Factors
Q: What factors are impacting consumer demand?
A: A combination of factors, including difficulty accumulating down payments in an inflated environment, fluctuating interest rates causing hesitancy, and seasonality, have made it more challenging for buyers to make purchasing decisions. -
Margin Strategy for Volume Targets
Q: Is there a lower bound on margins to achieve volume targets?
A: Lennar is committed to adjusting to market conditions and maintaining volume, using it to rationalize costs in land, production, and overhead. They will price to market without specifying a lower margin boundary. -
Purchase Accounting Impact
Q: Will the Rausch Coleman acquisition impact margins due to purchase accounting?
A: There will be some purchase accounting impact in the second quarter if the deal closes at the end of the first quarter, but it is not expected to be material to margins overall. -
Inventory Freshness
Q: How are you managing the age of your inventory?
A: Lennar ensures inventory freshness, with about 80% being 90 days or fresher, as part of their focus on maintaining appropriate inventory levels and preventing pricing pressure. -
External Manager Choice for Millrose
Q: Why did you choose an external manager for Millrose?
A: Lennar partnered with Kennedy Lewis as an external manager due to their strong track record and existing relationship, allowing Millrose to operate efficiently from day one with clear cost structures and sustainable recurring income.