Tags: Lennar | profits | housing | LEN

Lennar Profits Despite Long Housing Slump

Friday, 02 Mar 2012 08:01 AM

By Tim Plaehn

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Homebuilder Lennar (LEN) and its shareholders suffered with the rest of the homebuilder stocks when the bottom fell out of the housing market in 2007. The company has used the hard years since to focus its efforts, logging profits despite the long housing slump.

Lennar builds and sells new homes in 17 states. According to the company web site, target markets are move-up home buyers and buyers in retirement communities. The company's largest sales region is in the Eastern United States. Lennar also owns Rialto Investments, which invests in distressed real estate holdings, real estate workouts and turnarounds.

As the slump began, Lennar went to an almost $2 billion loss in 2007 from a $1.3 billion profit in 2005. The company lost money in 2008 and 2008 before returning to profitability in 2010 with net income of $95 million, or 51 cents per share.

The results for 2011 produced a similar level of revenue and net income of 48 cents per share.

Smaller company


In 2007, Lennar sold almost 50,000 new homes. In 2010 and 2011, the company sold around 11,000 homes. Since 2005, the company has reduced the number of divisions to 24 from 124 and employees to 4,000 from 14,000.

The direct per square foot cost to produce a home has declined by a third. The smaller, leaner Lennar can be profitable producing a much smaller number of homes.

Signs of growth for Lennar reported in the 2011 fourth quarter include a 20 percent increase in sales orders and a 35 percent higher order backlog compared to the fourth quarter of 2010. The consensus earnings estimate for 2012 is 77 cents per share, but the individual analyst estimates range from 45 cents to $1.20.

The company faces housing industry headwinds, of course. Legions of upside-down homeowners prevent move-up sales, and potential buyers face tougher mortgage underwriting and unemployment risk.

Recently, the analysts at MKM Partners downgraded Lennar to a sell rating, noting the 75 percent share price increase from the early fall of 2011.

The company next reports on March 29.

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