Lennar Corp (LEN.N), the second-largest U.S. homebuilder, reported a drop in quarterly gross margin that overshadowed a higher-than-expected profit, as the company struggled with higher land and construction costs.
Lennar's shares were down 3.2 percent at $50.97 in morning trading on Tuesday.
Gross margin fell to 21.1 percent in the quarter ended Feb. 28 from 22.7 percent a year earlier, the company said.
Although a robust labor market is supporting the housing market, this is unlikely to translate into a homebuilding boom as builders continued to complain about rising material prices, higher mortgage rates and shortages of lots and labor.
Bigger rival D.R. Horton Inc (DHI.N), which reported results in January, also posted a drop in gross margin in the quarter.
However, Lennar said it expected the challenges in the market to have a positive effect on pricing.
"In this environment of accelerating sales pace, together with limited land and labor, and tight inventory particularly at the lower price points, we believe we are positioned for increased pricing power and solid earnings going forward," Chief Executive Stuart Miller said.
Orders, a key indicator of future revenue for homebuilders, rose about 12 percent to 6,483 homes in the first quarter ended Feb. 28, its biggest rise in more than one and a half year.
The Florida-based builder sold 5,453 homes in the quarter, compared with 4,832 homes last year. However, the average sales price remained flat at $365,000.
Net income attributable to Lennar shareholders fell to $130.8 million, or 56 cents per share, in the quarter from $144.1 million, or 63 cents per share, a year earlier.
Excluding items, the company earned 59 cents per share, below the average analysts' estimate of 55 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose to $2.34 billion from $1.99 billion. Analysts had estimated revenue of $2.19 billion.
Up to Monday's close, shares of the company had risen 10.6 percent in the past 12 months.
(Reporting by Arunima Banerjee in Bengaluru; Editing by Anil D'Silva)