January 7, 2010 / 12:05 PM / 10 years ago

UPDATE 5-Lennar posts first profit since '07; shares rise

* Lennar expects to make money in 2010

* Q4 EPS $0.19 vs loss $5.12 a year ago

* Revenue falls 29 pct

* Shares up 14 percent (Adds analyst and executive quotes; updates shares)

By Helen Chernikoff

NEW YORK, Jan 7 (Reuters) - Homebuilder Lennar Corp (LEN.N) posted its first quarterly profit in almost three years and talked optimistically about 2010, boosting its shares and those of its rivals across the battered industry.

Lennar, which last made a quarterly profit in the first quarter of 2007, said it will make money next year, even in the absence the one-time gain from federal taxes that boosted its fourth quarter.

“I think we’re back to a normalized business model today, and I think that’s part of what has us enthusiastic about closing out 2009,” said Chief Executive Stuart Miller during a conference call with analysts.

Lennar, one of the top five U.S. homebuilders, reported earnings of $35.6 million, or 19 cents per share, for the fourth quarter ended Nov. 30, compared with a year-earlier loss of $811 million, or $5.12 per share. Revenue fell 29 percent to $913.7 million.

It recorded a gain of $1.34 per share from an extension of federal tax law allowing companies to apply losses to prior income.

Wall Street expected a loss of 48 cents a share before special items, on revenue of $862.7 million, according to Thomson Reuters I/B/E/S. Thomson Reuters could not determine whether the results compared directly with estimates.


For a graphic on the fourth quarter's results, click link.reuters.com/xyx32


Lennar’s shares were up 14 percent in afternoon trading, a bounce that Macquarie Securities analyst Kenneth Zener attributed primarily to the company’s move away from joint ventures and the recourse debt — and discount to Lennar’s valuation — that went with them. Recourse debt allows lenders to collect the debtor’s assets instead of foreclosing on them, because it is not backed by collateral.

“Recourse debt to the joint venture partners declined,” said Zener, who has a “buy” on Lennar’s shares and a 12-month price target of $17. “So the relative discount should continue to contract accordingly.”

The company’s joint ventures have fallen to 62 from a peak of 270 and will fall again by half in 2010, the company said.

A LIGHT IN 2010?

Lennar and other builders got a breather in the year’s final quarter. Orders increased as buyers plunged into the market, emboldened by a federal tax credit, historically low interest rates and lower home prices.

At Lennar, orders were up by 3 percent in the fourth quarter, not as much as some other builders but still its first year-over-year increase since the first quarter of 2006.

Some analysts see a bleak first quarter in builders’ immediate future as demand pulled forward by the homebuyers’ tax credit levels off. Indeed, Lennar said it will lose money in its next quarter.

But in general, Lennar is getting back to normal, Miller said. The tax credit is helping clear the market of foreclosures that competed directly with new homes.

The era of land charges on assets losing value is drawing to a close because Lennar has already marked down so much: it has taken $5 billion in such charges over about four years.

And the company is even obtaining land and building houses, mainly by exploiting those lower land prices.

During its conference call, the company said it has put 5,000 lots under contract since August, and described projects in Texas and North Carolina and California that should see gross margins in the range of 20 percent to 30 percent.

Margins are already growing, rising to about 17.8 percent in the fourth quarter, as the company had less need for buyer incentives and has slashed costs so ferociously to match the decline in demand.

But cost-cutting can go only so far, Macquarie’s Zener said. For the company and the industry to truly come back, demand must, as well. That depends on a recovery in the broader economy.

“Their cost structure is coming into line but they need volume and demand to come back to absorb the fixed overhead,” Zener said.

Lennar shares were up 14.2 percent at $15.65 in late afternoon trading, while No. 1 builder Pulte Homes Inc (PHM.N) rose 7.9 percent to $11.19 and D.R. Horton Inc (DHI.N) gained 6.9 percent to $12.46. The Dow Jones U.S. Home Construction Index .DJUSHB was up 7.2 percent, compared with a .3 percent increase in the broader market, as measured by the Standard & Poor's 500 Index .SPX. (Reporting by Helen Chernikoff and Bijoy Koyitty, editing by John Wallace, Lisa Von Ahn and Tim Dobbyn)

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