Lennar Shares Jump After Earnings Top Estimates

Lennar reported a higher-than-expected quarterly profit and a decline in orders that was less severe than Wall Street had feared, sending its shares up more than 5 percent.

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Orders fell sharply following the expiration of tax credits that boosted home sales last spring. But the decline in Lennar's orders was not as grim as the decline for the rest of the industry.

"This was going to be the bad quarter, with the end of the tax credit, so there will probably be a relief rally that the numbers weren't that bad," FBN Securities analyst Joel Locker said.

Orders fell 15 percent to 2,624 homes due to the April 30 expiration of the tax credit, which induced homebuyers to accelerate their purchases. The decline was exacerbated by unemployment and foreclosures that present a cheap alternative to a new home, Chief Executive Stuart Miller said in a statement.

Orders are an indicator of future sales, because homebuilders only recognize revenue once they have delivered a home.

KeyBanc analyst Ken Zener, who has a "buy" rating on Lennar, expected a 27 percent decline in orders.

For the third quarter ended Aug. 31, Lennar posted earnings of $30 million, or 16 cents a share, compared with a year-earlier loss of $171.6 million, or 97 cents per share.

Lennar's earnings beat analysts' expectations of a profit of 6 cents per share, according to Thomson Reuters.

Because of confusion over Lennar's tax rate, it was not clear whether the company's reported earnings compared exactly with analysts' estimates. But even the profit of 12 cents a share, which was adjusted for the tax rate, beat Wall Street's expectations.

Nationally, new home sales fell in the mid-20-percent range during Lennar's third quarter.

Revenue rose 14 percent to $825 million, also topping Wall Street's expectations of $777.5 million.

Lennar's earnings benefitted substantially from insurance recoveries related to the company's use of faulty Chinese drywall, Wachovia analyst Carl Reichardt wrote in a research note.

Without them, he estimates the company would have posted earnings of 7 cents per share.

"While this appears to be a generally better quarter than we believe most were expecting from Lennar, the optics somewhat overstate the accomplishment in our view," Reichardt said.

The tax credit's expiration has disappointed homebuilders, whose sales rebounded earlier this year. Homebuilders had hoped the rebound reflected improving fundamental demand rather than just the tax credits.

Last week, Beazer Homes USA cut its full-year order outlook after the expiration of the tax credit, saying potential buyers remain cautious amid high unemployment and continued foreclosures.

Shares of Lennar were up 7 percent in recent trading.

At Friday's close, the shares had lost 36 percent of their value since hitting a 52-week high in April.