June 25, 2009 / 11:53 AM / 10 years ago

Lennar loss widens; new home sales up sequentially

(Reuters) - U.S. homebuilder Lennar Corp (LEN.N) posted a wider year-over-year quarterly net loss, but saw a sequential rise in new home sales and orders, sending its shares up as much as 18 percent.

A Lennar housing development is seen in Broomfield, Colorado June 26, 2007. REUTERS/Rick Wilking

“During the second quarter, the housing market experienced a rise in sales of new homes, compared to the first quarter, as more confident homebuyers took advantage of increased affordability,” Chief Executive Stuart Miller said in a statement.

Declining home prices, low interest rates and government stimulus programs have created opportunities for prospective homebuyers, he added.

“Relative to the first quarter it appears that overall market conditions continued to stabilize, albeit at extremely depressed levels,” Raymond James analyst Buck Horne said in a note to clients.

Lennar’s second-quarter new home deliveries rose 47 percent, while new orders were up 63 percent sequentially. Cancellation rate fell to 15 percent from 22 percent a year ago.

“While we are sensing pent-up demand in the market, rising unemployment, increased foreclosures and tighter credit standards continue to present challenges for the industry,” CEO Miller noted.

This combined with a recent spike in mortgage rates has made it difficult to predict when the market will ultimately turn the corner, he added.


“While the company is exposed to a deteriorating housing market like other homebuilders, LEN faces the additional risks associated with potential liabilities arising from its joint venture investments,” Citigroup analyst Josh Levin said, adding that the stock is mispriced at its current valuation

Early this year, the company came under fire for how it treated its joint ventures. Wall Street analysts have long lamented Lennar’s extensive use of the joint venture land-buying structure, which requires a relatively low level of official disclosure.

With the company winding down its exposure to such investments, Levin expects the valuation discount to narrow. He has a “buy” rating, with a $12 price target on the stock.

Lennar ended the latest quarter with $1.4 billion in cash, helped by cutting down its completed, unsold inventory by 53 percent and reduced its maximum joint venture recourse exposure by $51.6 million to $422.4 million.

Second-quarter loss was $125.2 million, or 76 cents a share, compared with a loss of $120.9 million, or 76 cents a share a year ago. Revenue fell 21 percent to $891.9 million.

On a comparable basis, analysts were looking for a loss of 70 cents a share on revenue of $599.5 million, according to Reuters Estimates.

The quarterly loss included charges of 38 cents a share related to valuation adjustments and other write-offs, and 27 cents a share on a non-cash deferred tax asset valuation allowance, Lennar said.

Shares of the company were up almost 17 percent at $9.12 in morning trade on the New York Stock Exchange.

Reporting by Dhanya Ann Thoppil in Bangalore; Editing by Anil D'Silva, Himani Sarkar

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