Lennar Corporation Q1 FY2025 earnings call

• Completed Millrose spin-off and Rausch Coleman acquisition, transitioning to an asset-light land-light model.
• Focus on consistent volume by matching sales and production pace, adjusting incentives and pricing to maintain sales volume.
• Construction costs reduced by 1% QoQ and 2.5% YoY, cycle time improved by 17 days YoY.
• Land bank partnerships enable just-in-time home site delivery, with controlled homesites at 98%.
• Repurchased 5.2 million shares for $703 million in Q1, ended the quarter with $2.3 billion in cash and an 8.9% debt-to-total capital ratio.
• Distributed 80% of Millrose shares to shareholders, with plans to dispose of remaining 20% for cashless buyback.

In the first quarter, Lennar started 17,651 homes, delivered 17,834 homes, and sold 18,355 homes. Sales incentives rose to approximately 13%, reducing gross margin to 18.7%. SG&A came in at 8.5%, resulting in a net margin of 10.2%. The company's community count grew from 1,447 to 1,584. Construction costs were 1% lower QoQ and 2.5% lower YoY, reaching the lowest direct construction costs since Q3 2021. Cycle time decreased by 17 days YoY to 137 calendar days for single-family detached homes. Inventory turn stood at 1.7x versus 1.5x last year, a 13% increase. Revenue contribution is primarily from the homebuilding segment, with other segments like Financial Services and multifamily also being discussed.

• Q2 2025 new orders expected to be 22,500-23,500 homes, deliveries 19,500-20,500.
• Average sales price for Q2 deliveries $390,000-$400,000.
• Gross margin expected to be approximately 18%, excluding purchase accounting.
• SG&A percentage 8%-8.2%.
• Financial Services earnings expected $135M-$145M, multifamily breakeven.
• Other segments expected to have losses of $25M-$30M.
• EPS range $1.80-$2 per share.

• Challenging housing market with higher mortgage rates and limited actionable demand.
• Affordability issues and consumer confidence challenges limiting home transactions.
• Constrained housing supply due to years of underproduction and restrictive land permitting.
• Potential impact of tariffs and immigration policy on supply chain costs and labor.
• Uncertainty in market conditions affecting margin and cash flow.

Q: Stephen Kim asks about normalized margins and SG&A.

A: Stuart Miller and Diane Bessette discuss that normalized margins are expected to be mid-20s, SG&A is currently elevated but will decrease in the future, with SG&A previously around 7% versus 8% now and corporate G&A about 1.5% versus 2%.

Q: Alan Ratner asks about land underwriting and margin lift.

A: Stuart Miller and Fred Rothman respond that the company is strategically underwriting land at current levels, redeploying assets, and expects to benefit from refreshing land and inventory to achieve higher margins over time.

Q: John Lovallo asks about Q2 margin walk and Millrose impact.

A: Diane Bessette states purchase accounting was about 10 basis points in Q1 and expected 20 basis points in Q2, with current sales operating in the margin guidance zone.

Q: Michael Rehaut asks about Millrose margin impact and share repurchase.

A: Stuart Miller mentions the margin impact of Millrose is about 100 basis points, and the company expects to reignite share buyback program as cash flow normalizes.

Q: Susan Maklari asks about cash generation and M&A.

A: Stuart Miller and Fred Rothman discuss early stages of cost rationalization and efficiencies from the asset-light model, with M&A opportunities being strategic and capital-efficient using land partnerships.

Q: Kenneth Zener asks about cash flow per unit and share count.

A: Diane Bessette and Stuart Miller explain that land is part of variable costs but efficiencies in production offset this, and share count guidance for Q2 is based on current projections.