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Lennar, KBHome profit surges; shares stage brisk rally

Construction workers build a new home in Homestead, Florida.
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Construction workers build a new home in Homestead, Florida.

Lennar, the No. 3 U.S. homebuilder, reported a better-than-expected quarterly profit as it sold more homes at higher prices, indicating the U.S. housing recovery is firmly on track.

U.S. homebuilders have been under pressure since May when interest rates started rising on fears that the Federal Reserve would taper bond purchases, adding to the uncertainty over the housing recovery. The Fed last week decided to postpone the winding down of its monetary stimulus.

Lennar said on Tuesday orders for new homes rose 14 percent in the third quarter and that the long-term outlook for its business remains "extremely bright".

"We continue to see long-term fundamental demand in the market driven by the significant shortfall of new single-family and multi-family homes built over the last five years," Chief Executive Stuart Miller said in a statement.

U.S. housing starts rose less than expected in August amid a sharp slowdown in the multifamily sector, but a surge in permits for single-family homes pointed to sustained strengthening in the housing market recovery.

Lennar primarily sells single-family homes in communities targeted at first-time, move-up and active adult homebuyers.

The company is better positioned than many of its peers to continue building houses as it got back into the game early and actively bought land over the past several years.

Miami, Florida-based Lennar was among the top 5 U.S. homebuilders to report quarterly earnings. Smaller rival KBHome also reported a big jump in its fiscal third-quarter profit, which soared to 30 cents per share from four cents in the comparable year-ago period.

Orders surge

Orders, a key indicator for builders who do not book revenue on a house until the sale is complete, jumped to 4,785 houses in the third quarter, Lennar said.

Lennar's backlog - houses ordered but not yet finished - rose 32 percent to 5,958 in units and 53 percent to $1.9 billion in value.

Gross margins on home sales rose to 24.9 percent from 23.2 percent a year earlier, driven by a greater percentage of deliveries from new higher-margin communities, the company said.

Net income rose to $120.7 million, or 54 cents per share, in the third quarter from $87.1 million, or 40 cents per share, a year earlier.

Total revenue rose 46 percent to $1.60 billion.

Analysts on average had expected earnings of 45 cents per share on revenue of $1.56 billion, according to Thomson Reuters I/B/E/S.

Lennar shares jumped by nearly 6 percent, trading near $37 in afternoon dealings. KBHome's stock rose by more than 4 percent, to trade near $18.

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