A pandemic-driven housing boom, coupled with a confluence of millennials starting families and creating households of their, underscores Lennar Corporation (NYSE: LEN)'s long-term prospects. The company is fresh from reporting impressive fourth-quarter results that topped business, affirming booming business in the house construction business.
Booming Housing Market
A perfect business opportunity has presented itself on a surge in demand for housing combined by the market's inability to produce sufficient homes. Lennar Corp remains well-positioned with its production-oriented and everything business model to profit from the undersupply of new and existing homes for sale.
Purchase contracts in the recent quarter were up 16%, 15,124 above 14, 20 that analysts expected. The increase could be attributed to, among other things, a booming housing market thanks to record low mortgage rates in history.
Net earnings climbed to $882.8 million or 2.82 a share compared to $674.3 million reported a year ago. Revenues were down 2% to $6.8 billion. Lennar Corp ended the quarter with a backlog of 18,821 homes, up 21%.
Lennar Corp's core homebuilding operations edged higher with starts up 28% year-over-year. While new home deliveries tanked 2%, the company was able to profit from a strong pricing power with gross margin increasing 350 basis points to 25%.
Lennar Corp Outlook
Given the strong housing demand amid undersupply, Lennar Corp remains focused on cash flow and returns. The company also remains focused on improving its controlled home site percentage, which was up 600 basis points to 39%.
Lennar Corp heads into 2021 at the back of strong sales growth momentum in all the major markets. Sales in the recent quarter could have been much higher had the company focused on volume. Likewise, increased focus on reducing construction costs continues to drive excellent margins.
Lennar Corp generated $2 billion in strong homebuilding cash flow ending the quarter with $2.7 billion in cash. Backed by an excellent balance sheet and strong cash flow generation and continued execution of core operating strategies, the company is positioned for an even stronger 2021.