Lennar Corporation (LEN) Earnings

Management highlights

### Market Dynamics - Mortgage rates remain stubbornly elevated in the mid-6% range, keeping home affordability challenged for median-income buyers, who spend over 30% of gross income on housing at current rates - A recent energy-driven inflation spike (headline 4.2% YoY in May 2026) has dampened consumer confidence and taken near-term Fed rate cuts off the table; while core inflation is decelerating, higher energy prices reduce consumer willingness to make large purchases like homes - Underlying demand for new homes remains real and growing, and the market faces structural under-supply of housing - Uncertainty around long-term employment driven by AI adoption is slowing buyer urgency, even as overall intent to purchase remains high - Construction costs per square foot fell 7% YoY to $81 (down 13% from two years ago), and construction cycle time hit a record low 121 days, improving inventory turn to 2.5x from 1.8x a year ago - Labor availability has improved slightly in some markets as multifamily construction slows, but remains tight in others due to immigration policy and data center construction activity - Federal attention to the national housing affordability crisis is at unprecedented levels, but proposed restrictions on institutional single-family home purchases are a concerning long-term development that could reduce housing supply ### Strategic Progress - The company maintains its long-standing dual core strategy: consistent volume-based even-flow production, and an asset-light land model to drive strong cash flow and returns - Less than 5% of the company's land is held on balance sheet (only 2% owned directly), with 98% controlled via third-party options and land banking partnerships. Land banks currently deliver 86% of home sites just-in-time, with $7.1 billion in total option/pre-acquisition costs at quarter end - The company is on track to launch an updated, highly efficient digital land operating system by year end that will reduce costs and improve land acquisition and management - The Everything's Included product platform standardizes features at scale to capture purchasing efficiencies, offset cost pressures, protect margins, and deliver transparent value to buyers - Targeted financing programs (rate buy-downs, closing cost assistance) help buyers achieve affordable monthly payments, addressing the current market dynamic where most buyers qualify based on monthly payment rather than total price - New leadership appointments include Jim Parker as Chief Operating Officer and David Grove as Executive Vice President for Home Building, who will jointly oversee national operations - A new investor deck detailing the company's multi-year transformation and strategy is now posted on the investor relations website

Guidance

- Q3 2026 new orders are projected between 21,000 and 22,000 homes, with deliveries between 20,500 and 21,500 homes - Q3 2026 average sales price is expected to range between $375,000 and $380,000 - Q3 2026 gross margin is projected at approximately 16%, representing a 40 basis point sequential improvement, driven by operational efficiencies, greater core product mix, and cost structure improvements - Q3 2026 SG&A as a percentage of revenue is expected between 8.8% and 9% - Full year 2026 annual delivery guidance was revised downward to 82,000 to 83,000 homes from prior guidance, due to ongoing macroeconomic uncertainty and elevated interest rates - Q3 2026 EPS is projected between $1.20 and $1.40, with an effective tax rate of approximately 28%

Segment performance

### Home Building Segment - Delivered 20,519 homes, generated 21,749 new orders, with an average sales price of $371,500. Gross margin came in at 15.6%, net margin at 6.4%, GAAP net income of $305 million, and EPS of $1.24 (or $1.31 excluding mark-to-market losses on technology investments). Total home building inventory was $10.9 billion, with inventory turn of 2.5x and return on inventory of 15.3%. This segment contributed over 95% of total company revenue. ### Financial Services Segment - Expected Q3 2026 earnings between $95 million and $100 million. No Q2 2026 absolute result was provided in the transcript. ### Multifamily Segment - Expected Q3 2026 loss of approximately $15 million. No Q2 2026 absolute result was provided in the transcript. ### Lennar Other Segment - Expected Q3 2026 loss of approximately $20 million, excluding potential mark-to-market adjustments. This segment includes the company's technology investments, which incurred mark-to-market losses in Q2 2026. No Q2 2026 absolute result was provided in the transcript.

Risks & headwinds

- Elevated mortgage rates and the recent energy-driven inflation spike have worsened affordability and reduced consumer willingness to commit to large home purchases, creating a choppy, erratic market - Geopolitical uncertainty (specifically the Iran conflict driving oil supply disruptions and higher energy prices) creates unanticipated macro volatility - Federal and state restrictions on institutional single-family home purchases could reduce housing production and exacerbate structural supply shortages, while also altering demand dynamics in local markets - Labor supply remains tight in many geographies due to immigration policy and competing construction demand from data centers - Land option maintenance fees are currently accumulating faster than they are being expensed as the asset-light land model scales, creating a temporary imbalance that will only equalize as the model matures - Technology platform modernization has had missteps during implementation, though it is expected to deliver substantial long-term cost savings

Analyst Q&A

• Q: How is the shift to more core product impacting cash flow and returns, and what is the outlook for cost savings from technology investments?

  A: An increasing share of Lennar's deliveries are moving to standardized core products, which are more efficient to build, have lower costs, and reduce both cycle time and cost per square foot. These improvements directly boost inventory turn and returns. Management notes that foundational technology updates are still being entrenched after past implementation missteps, but will deliver substantial SG&A and corporate cost reductions over time, though they cannot yet quantify the exact size or timing of savings. Both core product optimization and technology also improve the customer experience alongside driving cost efficiencies.

• Q: Why did you lower full-year delivery guidance while also reducing sales incentives? Are lower incentives causing slower sales that forced the guidance cut?

  A: Lennar was able to maintain a healthy sales pace of 4.3 sales per community per week during Q2 while reducing incentives, supported by strong core product execution and an improved sales and marketing funnel that drives higher conversion. The full-year guidance reduction was a prudent step to manage inventory levels amid elevated macro and geopolitical uncertainty, not a result of slower sales from lower incentives. Management intentionally pulled back start pace to align with current market absorption, allowing incentive reductions to mature rather than forcing volume through heavy discounting, and reduced completed inventory per community from 3 to ~2.1, which is management's comfort zone.

• Q: Is Q2 2026 earnings overstated because option maintenance fees capitalized in ACOR are $270 million higher than the amount expensed this quarter?

  A: This imbalance is a natural, expected part of scaling the asset-light land model, and does not represent an overstatement of earnings. As Lennar transitions from owning land on-balance sheet to sourcing land via multi-year land bank partnerships, option maintenance fees for multi-year land pipelines are capitalized upfront, and only reduced as individual home sites are pulled for production. The imbalance will ultimately equalize over time, and most land banks are already close to equilibrium, with only the newer Milrose joint venture still progressing toward balance.

• Q: Can you elaborate on your comment that meaningful federal housing action is closer than the market expects?

  A: Management notes that focus on housing affordability across the executive and legislative branches is unprecedented in their career, and interest remains consistent even after being temporarily overshadowed by other policy priorities. Management declined to share specific details of ongoing discussions to avoid creating false optimism, but expects housing affordability will return to being a front-burner policy issue, and meaningful federal action is more likely than the market currently anticipates.