This summary is based on the fourth quarter earnings call conducted by Lennar Corp. (LEN) on December 18, 2008.
Management:
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President and CEO: Stuart Miller
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CFO: Bruce Gross
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VP and Treasurer: Diane Bessette
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Controller: David Collins
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Director IR: Scott Shipley
Key Investors Issues
- The firm had a net loss of $811.0 million, or $5.12 a share, compared to a net loss of $1.3 billion, or $7.92 a share in the prior year.
- Revenues dropped 40% to $1.2 billion from $2.0 billion in 2007.
Full Year Highlights:
- The net loss was $1.1 billion, or $7.00 per diluted share, compared to a net loss of $1.9 billion, or $12.31 per diluted share in 2007.
- Revenues decreased 56% to $4.2 billion from $9.5 billion in 2007.
Fourth Quarter Highlights
The firm reported a net loss of $811.0 million, or $5.12 per diluted share, compared to a net loss of $1.3 billion, or $7.92 per diluted share in 2007 due to a decline in revenues from home sales.
- The firm increased its EBIT before evaluation adjustments to approximately $159 million.
- Revenues decreased 40% to $1.2 billion from $2.0 billion in 2007 due to a 34% decrease in the number of home deliveries and a 10% decrease in the average sales price of homes delivered.
- New home deliveries, excluding unconsolidated entities, decreased to 4,484 homes from 6,810 homes last year.
- The average sales price of homes delivered decreased to $262,000 from $291,000 in the same period last year, due to reduced pricing.
Sales incentives offered to homebuyers were $51,400 per home delivered, compared to $58,800 per home delivered in the same period last year.
- Gross margins on home sales excluding SFAS 144 valuation adjustments were $200.8 million, or 17.0%, compared to $240.4 million, or 12.1%, in the prior year.
- Gross margin percentage on home sales, excluding SFAS 144 valuation adjustments, improved due to lower inventory basis and continued focus on repositioning its product and reducing construction costs.
- Selling, general and administrative expenses were reduced by $131.8 million, or 44%, due to the consolidation of divisions, which resulted in reductions in associate headcount, variable selling expense and fixed costs.
Losses on land sales totaled $72.5 million, which included $16.7 million of SFAS 144 valuation adjustments and $62.9 million of write-offs of deposits and pre-acquisition costs related to 2,700 homesites under option.
- Equity in loss from unconsolidated entities was $6.3 million which included $2.4 million of SFAS 144 valuation adjustments related to assets of unconsolidated entities in which the Company has investments.
- Management fees and other expense, net, totaled $78.1 million, which included $56.3 million of APB 18 valuation adjustments to the Company''s investments in unconsolidated entities.
- New orders were down 46% compared to the prior year and the number of homes in backlog declined 60% year-over-year.
- The financial services segment had a loss of $5 million compared with a loss of $19 million in the prior year.
Focus was on further strengthening the balance sheet liquidity and the $1.1 billion of homebuilding cash on the balance sheet, improved from $857 million at the end of the third quarter.
- The positive cash flow was a result of operational focus on significantly reducing land purchases, executing a high backlog conversion ratio and aggressively controlling costs.
- The firm had no outstanding borrowings on the revolving credit facility and was successful in amending that credit facility to provide greater flexibility under covenants and that facility commitment is now $1.1 billion and matures in July of 2011.
- The company has continued its aggressive focus on reducing the number of joint ventures, dissolving about 100 joint ventures this year, leaving 116 joint ventures.
It continues to make significant progress with reducing maximum recourse indebtedness with the unconsolidated JVs, which has been reduced now by 71% to $520 million.
- Inventory levels are down approximately $250 million sequentially to $3.8 billion excluding consolidated inventory not owned due to aggressively reducing land purchases to only $64 million.
- The finished homes and construction in progress inventory was reduced sequentially from $2.2 billion to $2.1 billion and land under development including option deposits, was also reduced sequentially from $1.8 billion to $1.7 billion.
- Homes under construction declined sequentially by about a third from 6,300 to 4,200 and unsold completed homes increased to 1,140 driven by an increase in the cancellation rate to 32%.
Impairment Update:
- The firm outlined valuation adjustments and write-offs of $221 million, which includes $31.8 million of land source write-offs.
- It continues to remain actively engaged in the rigorous process of division-by-division asset reviews to ensure that assets are properly stated.
Key questions and answers from the fourth quarter earnings call conducted by Lennar Corp. (LEN) on December 18, 2008.
