Lennar Corporation Q3 FY2025 earnings call

• Macro and Strategic Overview: Market conditions for the housing market softened, sales volume was challenging, and margin deteriorated to 17.5%. Lennar adjusted delivery expectations for the fourth quarter to 22,000 - 23,000 homes and full year to 81,500 - 82,500 homes. Focused on lower cost structure, efficient product offerings, and strong market positions. - Operational Overview by Jon Jaffe: Achieved a sales pace of 4.7 homes per community per month, average response time to leads improved to 46 seconds, cycle time reduced, direct construction costs down 1% quarter-over-quarter and 3% year-over-year, and asset-light strategy metrics improved with homesites supply at 0.1 years and controlled homesites at 98%. - Financial Services Overview by Diane Bessette: Operating earnings of $177 million from Financial Services, strong balance sheet with $1.4 billion cash and total liquidity $5.1 billion, homesites portfolio, inventory turn at 1.9x and return on inventory at 24%.

Homebuilding: In the third quarter, Lennar started approximately 21,500 homes, delivered about 21,500 homes, and sold just over 23,000 homes. Sales incentives rose to 14.3%, reducing gross margin to 17.5% with an average sales price of $383,000. SG&A came in at 8.2%, resulting in a net margin of 9.2%. Financial Services: For the third quarter, the Financial Services team had operating earnings of $177 million, primarily driven by the mortgage business with higher secondary margins.

• Reduced Q4 deliveries to 22,000 - 23,000 homes and full year deliveries to 81,500 - 82,500 homes. - Q4 sales expected to be 20,000 - 21,000 homes, average sales price $380,000 - $390,000, gross margin ~17.5%, SG&A 7.8% - 8%. - Financial Services earnings expected to be approximately $130 - $135 million, multifamily loss ~$30 million, Lennar Other loss $35 million, EPS range $2.10 - $2.30.

• Market conditions uncertainties including interest rate fluctuations. - Affordability challenges for customers. - Supply chain and cost pressures impacting margin.

Q: Alan Ratner asked about the pivot in strategy and whether incentives have been dialed back.

A: Stuart Miller said it's an adjustment, not a change in strategy, and Jon will focus on dialing back incentives over the next few weeks.

Q: Stephen Kim asked about the duration of the slowdown.

A: Stuart Miller said it's not a permanent change, but a recalibration to maintain volume and drive margin down in a slowing market.

Q: Michael Rehaut asked about the bottom-line basis for the adjustment.

A: Stuart Miller said it's a real-time response to market conditions, taking pressure off marketing and sales programs to recalibrate.

Q: Susan Maklari asked about inventory turns and cash generation.

A: Stuart Miller and Jon Jaffe discussed ongoing efforts to drive inventory turns, focusing on efficiency and modern technologies, and cash generation is focused on total shareholder return.

Q: John Lovallo asked about the slight miss in third quarter deliveries.

A: Jonathan Jaffe said it was due to timing related to mortgage approval process.

Q: Matthew Bouley asked about incentives and rate environment.

A: Stuart Miller discussed how incentives like mortgage buydowns unlock the housing market, and it's about enabling more activity in the ecosystem.

Q: Jade Rahmani asked about Millrose deliveries and gross margin outlook.

A: Diane Bessette said ~25% of year-to-date deliveries came from Millrose, and Millrose's low cost benefits margins, with focus on managing option costs for affordability.